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 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.

Bibliographic Details

Main Authors:	Kearney, Marna, Essama-Nssah, B., Korman, Vijdan, Go, Delfin S., Robinson, Sherman, Thierfelder, Karen
Language:	English
Published:	World Bank, Washington, DC 2007-09
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 https://hdl.handle.net/10986/7350
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