Not all sectors are alike: Differential impacts of shocks in oil prices on the sectors of the Colombian economy

In this paper, an estimation of differential impacts of shocks in oil prices on the economic sectors in the oil-exporting Colombia is made. Using data from the world economy and adopting the model of structural autoregressive vectors (VAR) employed by Kilian et al. (2009), oil prices shocks are estimated according to three types of origin: oil supply, oil demand and aggregate demand. Subsequently, using data from the Colombian economy, the effects that these shocks have on sectoral production in Colombia are estimated through the use of VAR models which allow direct impacts to be separated from those that are transmitted through the interrelations between sectors. The results obtained show that only the specific demand for oil and aggregate demand shocks affect significantly the total production in Colombia, although not in all sectors. Only manufacturing industry, and electricity, gas and water sectors are directly and significantly affected by both types of demand shocks. However, when considering the indirect effects, transmitted through the interrelations between sectors, it was found that the total impacts of these two types of shocks affect the construction, transport and trade, restaurants and hotels sectors. As the effect is positive, the Colombian economy benefits from increases in oil prices due to demand factors, but responds negatively when the opposite situation occurs.