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Oil intensities and oil prices : evidence for Latin America

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  • Alaimo, Veronica
  • Lopez, Humberto

Abstract

Crude oil prices have dramatically increased over the past years and are now at a historical maximum in nominal terms and very close to it in real terms. It is difficult to argue, at least for net oil importers, that higher oil prices have a positive impact on welfare. In fact, the negative relationship between oil prices and economic activity has been well documented in the literature. Yet, to the extent that higher oil prices lead to lower oil consumption, it would be possible to argue that not all the effects of a price increase are negative. Climate change concerns have been on the rise in recent years and fossil fuel consumption is generally viewed as one of the main causes behind it. Thus this paper explores whether higher oil prices contribute to lowering oil intensities (that is, oil consumption per unit of gross domestic product). The findings show that following an increase in oil prices, OECD countries tend to reduce oil intensity. However, the same result does not hold for Latin America (and more generally for middle-income countries) where oil intensities appear to be unaffected by oil prices. The paper also explores why this is so.

Suggested Citation

  • Alaimo, Veronica & Lopez, Humberto, 2008. "Oil intensities and oil prices : evidence for Latin America," Policy Research Working Paper Series 4640, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4640
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    References listed on IDEAS

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    1. Daniel Artana & Fernando Navajas & Marcelo Catena, 2007. "El Shock de los Precios del Petróleo en América Central: Implicancias Fiscales y Energéticas," Research Department Publications 4556, Inter-American Development Bank, Research Department.
    2. Knut Anton Mork & Oystein Olsen & Hans Terje Mysen, 1994. "Macroeconomic Responses to Oil Price Increases and Decreases in Seven OECD Countries," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 19-36.
    3. Hillard G. Huntington, 2005. "US carbon emissions, technological progress and economic growth since 1870," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 23(4), pages 292-306.
    4. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    5. Dermot Gately & Hiliard G. Huntington, 2002. "The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 19-55.
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    Cited by:

    1. Stefan Schubert & Stephen Turnovsky, 2011. "The Impact of Energy Prices on Growth and Welfare in a Developing Open Economy," Open Economies Review, Springer, vol. 22(3), pages 365-386, July.
    2. repec:wbk:wboper:3022 is not listed on IDEAS
    3. Augusto de la Torre & Pablo Fajnzylber & John Nash, 2009. "Low Carbon, High Growth : Latin American Responses to Climate Change - An Overview," World Bank Publications, The World Bank, number 3022, April.
    4. Fakhraddin Maroofi & Parviz Kafchehi, 2012. "The Influence of Oil Prices on an Oil-Importing Developing Economy," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(4), pages 66-82, October.
    5. Schubert, Stefan F. & Turnovsky, Stephen J., 2011. "The impact of oil prices on an oil-importing developing economy," Journal of Development Economics, Elsevier, vol. 94(1), pages 18-29, January.
    6. Le, Thai-Ha & Chang, Youngho, 2015. "Effects of oil price shocks on the stock market performance: Do nature of shocks and economies matter?," Energy Economics, Elsevier, vol. 51(C), pages 261-274.

    More about this item

    Keywords

    Energy Production and Transportation; Oil Refining&Gas Industry; Markets and Market Access; Energy Demand; Environment and Energy Efficiency;

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