Oil Prices And Economic Growth Essay

1194 words - 5 pages

From the middle of twentieth century, due to exceptional importance of the crude oil in the supply of the world's energy demands, it has become one of the major indicators of economic activities of the world. Even after the appearance of alternate forms of energy like solar power, water and wind, the importance of crude oil as the main source of energy still cannot be denied.

This sharp increase in the world oil prices and the volatile exchange rates are generally regarded as the factors of discouraging economic growth. Particularly, the very recent highs, recorded in the world oil market bring apprehension about possible slump in the economic growth in both developed and developing countries.

A large number of researchers proposed that exchange rate volatility and oil price fluctuations have considerable consequences on real economic activities. The impact of oil price fluctuation is expected to be different between in oil exporting and in oil importing countries. An oil price increase should be considered as bad news for oil importing countries and good news for oil exporting countries, while the reverse should be expected when the oil price decreases. Through demand and supply transmission mechanism, oil prices impacts the real economic activity. The supply side effects are associated with the fact that crude oil is a basic input to production, and an increase in oil price leads to a rise in production costs ultimately that result in firms’ lower output. Oil prices changes also entail demand-side effects on investment and consumption. Consumption is also affected indirectly through its positive relation with disposable income. Moreover, oil prices have an adverse impact on investment by increasing firms’ costs. On the other hand it is generally recognized that the depreciation of exchange rate would reduce imports and expand exports, while the appreciation of exchange rate would encourage imports and discourage exports. Especially a depreciation of the exchange rate leads to transfer of income from oil importing countries to exporting countries in the terms of trade.

Since 2003, oil prices increased continuously, even touched the peak of $137 per barrel in July 2008, but after that a declining trend was observed. After 1970s, many negative oil shocks hit the world economies. The first one was during 1973-74 caused by OPEC oil prohibition, and secondly in 1978-79 when the OPEC put restraints on its oil production. This rising trend in oil prices continued until mid 1980s, subsequently, Iraq-Iran war in early 1980s further shoot up the prices. However in 1986, when Saudi Arabia increased its crude oil production, oil price tend to decreased. In 1990s, Iraq-Kuwait war was a major factor of oil price increase but it was ended in a year because of Asian financial crisis. In 1999-2000 the OPEC again narrow its production leading to another price shock. The latest and last oil price shock was started in the year 2003 which continued till...

Find Another Essay On Oil Prices and Economic Growth

Research and Evaluation: Fuel Oil Prices

701 words - 3 pages markets are the enemy of economic growth, job creation and improved quality of life for U.S. consumers. We need energy legislation that, (API 2004) "encourages conservation and energy efficiency, as well as, the development of diverse and reliable sources of energy, both renewable and conventional" (para 9) in order to supply consumers with reliable supplies of fuel in years to come.References:FYI on Heating Oil,(2004, October15), API, Retrieved

OPEC and Their Control on Oil Prices

1499 words - 6 pages many economic issues that are determined in the rise and fall of the American stock market; one of those issues is the price of oil. On many levels, the price of oil is dictated by groups of governments that have a stake in the success of the Organization for Petroleum Exporting Countries (OPEC). American consumers deserve to know how OPEC and its member countries influence the price of oil around the world.OPEC controls the price of oil around

Escalating Oil Prices and the Global Economy

2285 words - 9 pages consult with the Middle Eastern oil states before lowering their crude oil prices William, 1999). The producers feared that other countries would establish monopolies. They were to create a universal price between the countries, in order to ensure peace between oil producers throughout the world (Sheets, 1998). O.P.E.C. also wanted to supply its members with technical and economic support in times of need, since not all the countries were completely

Economic Exchange and Economic Growth

1552 words - 7 pages the controversy. To start with, economic growth differs from nation to nation and thus causing differences in development status. Accordingly, prices differ mostly due to production costs. United States as a nation portrays a clear image of this phenomenon, with the south being less developed as compared to the north. While cheap labor dominates the undeveloped regions, capital accumulation is higher in developed regions. With the aim of

Economic Growth and Economic Indicators

852 words - 4 pages Economic growth is measured by the change in real GDP. Real GDP is the total value of all of the goods and services produced in a year, adjusted for inflation. GDP, though not the best indicator of the quality of life, nations with a high GDP correlate to nations with a higher quality of life. The changes in real GDP for 2013 general trend of increasing GDP and hence increasing economic growth. The latest estimate for fourth quarter fiscal year

FDI and economic growth

3860 words - 15 pages Foreign direct investment (FDI) and Economic growthTable of Contents:Chapter 1 1.1 Introduction 1.2 Literature reviewChapter 2 2.1 Research question 2.2 HypothesisChapter 3 3.1 Outline of data and variables to be studied 3.2 Data analysis 3.3 ConclusionReferences1.1 IntroductionOver the past two decades, many countries around the world have experienced substantial growth in their economies, with even faster growth in international transactions

Economic Growth and Consumption

1785 words - 7 pages Question 2 Consumption and economic growth are the only two effective economic goals worth striving for in a modern globalized society. Do you agree? Consumption and economic growth are like In this essay it will be argued that the economic growth and consumption are unsustainable, environmentally detrimental and have a negative impact on human health and development and are not goals worth striving for in our modern globalized society. An

Economic Growth and Development

820 words - 3 pages Economic growth is a necessary but not sufficient condition of economic development. There is no single definition that encompasses all the aspects of economic development. The most comprehensive definition perhaps of economic development is the one given by Todaro: ‘Development is not purely an economic phenomenon but rather a multi – dimensional process involving reorganization and re orientation of the entire economic and social

Economic Growth and Development

1354 words - 5 pages 1)Distinguish between economic growth and economic development.Economic growth is a measure of a county’s productivity and the total combined income of that country. Economic development is a measure of how developed a country is i.e. people’s standard of living. For economic development to occur, economic growth also is needed but economic development is not needed for economic growth to occur.BasisEconomic DevelomentEconomic

High Oil Prices: The Mystery and the Future

2177 words - 9 pages demand that resulted in a decline in demand as a reaction to higher prices. Energy conservation, continual progress in efficient energy utilization and shifts to alternative sources of supply all combined to cause a dramatic fall in oil requirements for economic growth. However, as currently is happening, the oil prices are rising in very short periods. Thus, if investment is not made far enough in advance, oil supplies could be limited in the

Subprime Meltdown & Cause and Effect of Rising Oil Prices

3208 words - 13 pages boosting production costs (Amateur Economists, 2008).Impacts on different industries in general/ for Australian's in specificThe latest spike in oil prices is likely to add to worries about the global and local economic outlook. The threat to inflation is already apparently global and in some countries, is having the effect of preventing central banks from responding to signs of slower growth. However, more importantly at a time of weak economic

Similar Essays

Oil Prices And Economic Growth Essay

1194 words - 5 pages oil price variations and economic growth. The existence of a negative relationship between macro-economic activities and oil prices has become widely accepted especially after Hamilton’s 1983 work. He pointed out that increase in oil prices, reduced US output growth from 1948 to 1980. Hamilton's findings have been confirmed and extended by many authors and researcher. Hooker (1996) confirmed and extended Hamilton’s work for the period 1948 to 1972

Impact Of Oil Prices And Other Macro Economic Variables On Gdp

3979 words - 16 pages 1. Abstract The objective of the study is to measure the impact of changing oil prices, and other macro economic variables like consumption, government expenditures and average exchange rates on Gross Domestic Product-GDP in the context of Pakistan’s economy. The study is secondary data based and the observation is 150 with five variables and 30 years of data. The data is taken from World Bank, Inflationdata.com, State Bank of Pakistan

Oil And Gas Prices Essay

1981 words - 8 pages In America oil and gas prices have sky rocketed to record breaking figures over the past few years. Throughout the past several decades, the world's dependency on oil and gas has increased rapidly. These are among the most important resources. The need for oil and gas are growing at a rapid rate. The economy is influenced by many factors that determine its surplus or deficit. As the demand for oil and gas grows, the American family spends an

Increasing Oil And Gasoline Prices Essay

1270 words - 5 pages We the American people have seen rising oil and gasoline prices continuously over the last few decades. Each year is slightly higher than the last. However, we have seen a few instances where oil and gasoline prices have spiked rapidly enough to invoke the American public to stop spending or cut back. The first time in recent history was after the hurricanes Katrina and Rita in 2005. Then, in July 2008 we saw a massive jump to the current record