Economy-wide and distributional impacts of an oil price shock on the south African economy

B. Essama-Nssah, Delfin Go, Marna Kearney, Vijdan Korman, Sherman Robinson and Karen Thierfelder

No 4354, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Keywords: Economic Theory&Research; Labor Policies; Markets and Market Access; Access to Finance (search for similar items in EconPapers)
Date: 2007-09-01
New Economics Papers: this item is included in nep-afr, nep-cmp, nep-dev and nep-ene
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Citations: View citations in EconPapers (19)

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