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Oil price and potential output growth in the long run

  • G. LALANNE

    (Insee)

  • E. POULIQUEN

    (Insee)

  • O. SIMON

    (Insee)

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    The goal of this paper is to gauge the impact of the expected oil price increase on the potential output growth of the French economy in the long run. This potential output exercise is conducted using CES (Constant Elasticity of Substitution) production functions featuring three factors: capital, labour and energy. Moreover, the sectoral composition of the economy is taken into account through a breaking down of the economy into four sectors (manufacturing industry, construction, market services, and agriculture). The model yields a potential output of growth of about 2 % per year in the absence of oil price variations. The various scenarios of oil price increases result in a shortage of growth between 0.1 and 0.6 % per year in the medium run with respect to the constant oil price scenario. The major part of this growth shortage channels through a negative impact on the manufacturing sector, which is highly energy-intensive and also the engine of technical progress.

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    File URL: http://www.insee.fr/fr/publications-et-services/docs_doc_travail/G2009-09.pdf
    File Function: Document de travail de la DESE numéro G2009-09
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    Paper provided by Institut National de la Statistique et des Etudes Economiques, DESE in its series Documents de Travail de la DESE - Working Papers of the DESE with number g2009-09.

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    Date of creation: 2009
    Date of revision:
    Handle: RePEc:crs:wpdeee:g2009-09
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    1. Giuseppe Carone & C�cile Denis & Kieran Mc Morrow & Gilles Mourre & Werner R�ger, 2006. "Long-term labour productivity and GDP projections for the EU25 Member States : a production function framework," European Economy - Economic Papers 253, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Robert H. Rasche & John A. Tatom, 1977. "Energy resources and potential GNP," Review, Federal Reserve Bank of St. Louis, issue Jun, pages 10-24.
    3. Ark, Bart van, 1995. "Sectoral growth accounting and structural change in postwar Europe," GGDC Research Memorandum 199523, Groningen Growth and Development Centre, University of Groningen.
    4. Edwin van der Werf, 2007. "Production Functions for Climate Policy Modeling: An Empirical Analysis," Kiel Working Papers 1316, Kiel Institute for the World Economy.
    5. Edenhofer, Ottmar & Bauer, Nico & Kriegler, Elmar, 2005. "The impact of technological change on climate protection and welfare: Insights from the model MIND," Ecological Economics, Elsevier, vol. 54(2-3), pages 277-292, August.
    6. Alain Bernard & Marc Vielle, 2008. "GEMINI-E3, a general equilibrium model of international–national interactions between economy, energy and the environment," Computational Management Science, Springer, vol. 5(3), pages 173-206, May.
    7. Stefano Scarpetta & Andrea Bassanini & Dirk Pilat & Paul Schreyer, 2000. "Economic Growth in the OECD Area: Recent Trends at the Aggregate and Sectoral Level," OECD Economics Department Working Papers 248, OECD Publishing.
    8. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
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