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How Does A Decrease In Oil Production Affect The World Economy?

Naohiko Yahaba

Asia Pacific Economic Papers from Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University

Abstract: The world's oil consumption has been increasing for more than a century with a few exceptions. However, there would be a possibility that the recent increase in oil consumption in developing countries such as China and India tighten the long term oil market. Since the exact amount of oil reserves is unknown, it is difficult to predict when the ultimate decrease in oil production will come. However, for the last two decades, the amount of oil consumption per year has surpassed the amount of oil reserves newly found. Therefore, the possibility of ultimate decrease in oil production may increase. This paper examines the impact of the decrease in oil production on major economies using a computable general equilibrium model. Under the simulations in this paper, the oil exporting economies increase their GDPs, the utilities and the terms of trade. The oil importing regions, especially in newly industrialised and developing regions, decrease their GDPs, utilities and the terms of trade. All industry sectors decrease their world output. Among industry sectors, oil industry affects most and the industry sectors which use large amount of oil such as petroleum industry and chemical industry decrease its outputs significantly.

JEL-codes: L72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp and nep-ene
Date: 2010
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