Oil prices and the global economy: A general equilibrium analysis

A global computable general equilibrium model is used to analyze the economic impacts of rising oil prices with endogenously determined availability of biofuels to mitigate those impacts. The negative effects on the global economy are comparable to those found in other studies, but the impacts are u...

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Bibliographic Details
Published in:Energy economics 2015-05, Vol.49, p.669-675
Main Author: Timilsina, Govinda R.
Format: Article
Language:English
Subjects:
Benefits
Biodiesel fuels
Biofuels
Biomass energy
CGE model
China (People's Republic)
Classification
Economic equilibrium
Economic impact
Energy economics
Fossil fuels
Global economy
India
International trade
Manufacturing
Oil price
Petroleum industry
Price increases
Prices
Studies
World economy
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Summary:A global computable general equilibrium model is used to analyze the economic impacts of rising oil prices with endogenously determined availability of biofuels to mitigate those impacts. The negative effects on the global economy are comparable to those found in other studies, but the impacts are unevenly distributed across countries/regions or sectors. The agricultural sectors of high-income countries, which are relatively energy intensive, would suffer more from a rising oil prices than that in lower-income countries, whereas the reverse is true for the impacts across manufacturing sectors. The impacts are especially strong for oil importers with relatively energy-intensive manufacturing and trade, such as India and China. While the availability of biofuels does mitigate some of the negative impacts of rising oil prices, the benefit is small because capacity of biofuels to economically substitute for fossil fuels on a large scale remains limited. •A CGE model is used to analyze impacts of oil price shocks on the global economy.•More econometric than structural models are used in the literature.•Various scenarios on oil price rise are considered to analyze the economic impacts.•A doubling of oil price would cause 1.86% drop of global GDP.•The role of biofuels to offsets the GDP loss due to oil price shock is limited.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2015.03.005