DP15296 Implications of Cheap Oil for Emerging Markets

Author(s): Alain Kabundi, Franziska Ohnsorge
Publication Date: September 2020
Keyword(s): Covid-19 pandemic, demand factors, local projections model, macroeconomic implications, oil price decline, supply factors
JEL(s): E32, F40, Q40, Q41, Q43
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15296

The COVID-19-triggered collapse in oil prices in March and April 2020 was the seventh, and by far the most severe, in a series of such collapses since 1970. This paper, first, compares this most recent collapse and its drivers with previous ones in an event study. It finds that it was associated with an exceptionally severe plunge in oil demand. Second, in a local projections model, this paper estimates the implications of demand- and supply-driven oil price collapses for growth in emerging markets and developing economies (EMDEs). The paper finds that steep oil price collapses were associated with significant and lasting output losses in energy-exporting EMDEs but no meaningful output gains in energy-importing EMDEs. These results are robust to multiple robustness checks.