Economy-wide and Distributional Impacts of an Oil Price Shock on the South African Economy

As crude oil prices reach new highs, there is renewed concern about how external shocks will affect growth and poverty in developing countries. This paper describes a macro-micro framework for examining the structural and distributional consequence...

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Bibliographic Details
Main Authors:	Essama-Nssah, B., Go, Delfin S., Kearney, Marna, Korman, Vijdan, Robinson, Sherman, Thierfelder, Karen
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCESS TO INFORMATION ACCOUNTING ADVERSE IMPACT AGRICULTURAL SECTORS AGRICULTURE ANNUAL INCOME ANNUAL WAGE BASE YEAR BENCHMARK CALCULATIONS CAPITAL ACCUMULATION CAPITAL FORMATION CAPITAL STOCKS CATERING COMMODITIES COMMODITY COMMODITY PRICE COMMODITY PRICES COMPETITIVE LABOR MARKETS CONSUMER CONSUMER GOOD CONSUMER GOODS CONSUMER PRICE CONSUMER PRICE INDEX CONSUMER PRICES CONSUMPTION EXPENDITURES CONSUMPTION LEVELS CONTRIBUTION COST INCREASES COST OF LIVING CURRENCY DECLINING WAGES DEMAND FUNCTIONS DEMOGRAPHIC CHARACTERISTICS DEPRECIATION EARNINGS ECONOMETRIC MODELING ECONOMETRICS ECONOMIC ACTIVITIES ECONOMIC FRAMEWORK ECONOMIC GROWTH ECONOMIC POLICIES ECONOMIC POLICY ECONOMIC RESEARCH ECONOMIC SECTORS ECONOMIC SYSTEMS ECONOMIC THEORY ELASTICITY ELASTICITY OF SUBSTITUTION EMPLOYEE EMPLOYMENT OPPORTUNITIES ENDOWMENTS EQUATIONS EQUILIBRIUM EXCHANGE RATE EXPORT EARNINGS EXPORTS EXTERNAL SHOCK EXTERNAL SHOCKS FACTOR PRICES FAMILY BUSINESS FAVORABLE TERMS FINANCIAL SERVICES FUNCTIONAL FORMS GDP GENDER GENDER DIFFERENCES GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM ANALYSIS GINI COEFFICIENT HEAD OF HOUSEHOLD HOUSEHOLD ANALYSIS HOUSEHOLD EXPENDITURE HOUSEHOLD EXPENDITURES HOUSEHOLD INCOME HOUSEHOLD INCOMES HOUSEHOLD WELFARE HOUSEHOLDS HUMAN CAPITAL IDS INCOME INCOME EFFECTS INCOME GROUPS INCOME SOURCES INEQUALITY INEQUALITY MEASURES INFORMAL WORKER INFORMAL WORKERS INHERITANCES INSURANCE INTERNATIONAL BANK INVESTMENT PROGRAMS JOB LOSS LABOR FORCE LABOR FORCE SURVEY LABOR FORCE SURVEYS LABOR MARKET LABOR MARKET ADJUSTMENT LABOR MARKETS LABOR SUPPLY LABOR SURVEYS LABORERS LABOUR LABOUR MARKET LIFE INSURANCE LOCAL CURRENCY LORENZ CURVE LUMP SUM LUMP SUMS MACROECONOMIC EVENTS MACROECONOMIC SHOCKS MACROECONOMICS MARGINAL UTILITY MARKET BEHAVIOR MARKET PRICES MARKET STRUCTURE MARKET WAGES MARRIED COUPLES NEW JOBS OPPORTUNITY COST OPTIMIZATION PENSION PER CAPITA INCOME PER CAPITA INCOMES PETROLEUM PRICES PHYSICAL CAPITAL PRICE CHANGES PRICE INCREASE PRICE LEVEL PROBABILITIES PROBABILITY PRODUCTION FUNCTION PRODUCTIVITY PURCHASES PURCHASING PURCHASING POWER PURCHASING POWER PARITY REAL GDP REAL INCOME REAL WAGES REMITTANCES RENTS RESOURCE ALLOCATION RETAIL RETAIL TRADE RETIREMENT SALE SALES SAVINGS SELF-EMPLOYMENT SELF-EMPLOYMENT EARNINGS SKILLED LABOR SKILLED WORKERS SOURCES OF INCOME STAKEHOLDERS STANDARD OF LIVING STOCKS STRUCTURAL UNEMPLOYMENT SUBSTITUTE SUPPLY CURVES TECHNICAL ASSISTANCE TYPES OF CONSUMER UNEMPLOYED UNEMPLOYED WORKERS UNEMPLOYMENT UNEMPLOYMENT RATE UNION UNSKILLED LABOR URBAN AREA URBAN AREAS URBAN POPULATION UTILITY FUNCTION VALUABLE VALUE ADDED WAGE WAGES WEALTH WORK FORCE
Online Access:	http://documents.worldbank.org/curated/en/2007/09/8322895/economy-wide-distributional-impacts-oil-price-shock-south-african-economy http://hdl.handle.net/10986/7350

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Summary:	As crude oil prices reach new highs, there is renewed concern about how external shocks will affect growth and poverty in developing countries. This paper describes a macro-micro framework for examining the structural and distributional consequences of a significant external shock-an increase in the world price of oil-on the South African economy. The authors merge results from a highly disaggregative computable general equilibrium model and a micro-simulation analysis of earnings and occupational choice based on socio-demographic characteristics of the household. The model provides changes in employment, wages, and prices that are used in the micro-simulation. The analysis finds that a 125 percent increase in the price of crude oil and refined petroleum reduces employment and GDP by approximately 2 percent, and reduces household consumption by approximately 7 percent. The oil price shock tends to increase the disparity between rich and poor. The adverse impact of the oil price shock is felt by the poorer segment of the formal labor market in the form of declining wages and increased unemployment. Unemployment hits mostly low and medium-skilled workers in the services sector. High-skilled households, on average, gain from the oil price shock. Their income rises and their spending basket is less skewed toward food and other goods that are most affected by changes in oil prices.

Economy-wide and Distributional Impacts of an Oil Price Shock on the South African Economy

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