Oil Shocks
The Cost to the LDCS

The 1979 oil price increases affected both the industrialised and the developing nations, particularly through the fall in potential output resulting from the oil price 'hike'.

In Discussion Paper No. 69 Richard Westoby and CEPR Research Fellow David Pearce estimate the loss incurred by developing countries as a consequence of rises in the price of oil after 1979. The impact of the oil price shock may vary greatly between individual developing countries. Pearce and Westoby selected a number of developing countries and calculated the size of the fall in potential output resulting from the oil price 'hike' for each country. Developing countries as a whole may have fared differently from the industrialised countries as a consequence of oil price changes; the impact of the oil price 'hike' on a number of developed nations was also calculated for the purposes of
comparison.

Pearce and Westoby obtained their results by adapting a model which has been used to analyse energy policy issues in Egypt and Sudan for the World Bank. The authors found a wide variation among developing countries in the size of the oil-price impact on output. In addition developing countries as a whole seemed to have suffered a much greater loss in potential output as a result of the oil price shock than the industrialised countries.


World Oil Prices and Output Losses in Developing Countries
D Pearce and R Westoby

Discussion Paper No. 69, July 1985 (IT)