Home > Free Essays > Economics > Macroeconomics > Effect of Oil Prices on Different Countries’ GDP
Cite this

Effect of Oil Prices on Different Countries’ GDP Research Paper


The oil prices play the important role in affecting the countries’ gross domestic product as the important market and economic value because the oil operations are globally discussed as determining the countries’ economic performance. Changes in the oil prices can influence the economies of different countries significantly with the focus on various channels.

Unexpected increases in oil prices known as the oil price shocks can be discussed as the most influential processes because all the industries and companies become affected by these increases, and the regular changes in the oil prices are reflected in the changes of the countries’ GDP components which are the personal consumption expenditures, gross private domestic investment, government spending, and net exports (Lescaroux and Mignon 5).

According to the World Bank statistics, the increase in oil prices in the 1990s led to diminishing the countries’ GDP in relation to different GDP components.

However, it is important to note that this conclusion should be compared with the situation in the 2000s because today the changes in the oil prices affect the GDP of the countries-members of the Organisation of the Petroleum Exporting Countries (OPEC), oil-exporting countries, and oil-importing countries differently (“The World Bank”).

That is why, it is important to focus on the analysis of the oil prices’ impact on the GDP of such countries as the United States, the United Kingdom, Saudi Arabia, and India with references to the examination of changes in these countries’ GDP during the period of 1995-2005.

The GDP components include the personal consumption expenditures, gross private domestic investment, government spending, and net exports. All these indicators become influenced by the changes in the oil prices, and the most negative effect is expected while focusing on the increase of oil prices.

The following reduction of productivity and potential output is observed in relation to the oil-importing countries. However, the most negative effect is usually the result of the oil price shocks when the regular increases in the oil prices cannot affect the economies significantly because of their adaptation procedures (Lescaroux and Mignon 6).

The observed increase in production cost is compensated with references to the other indicators as well as the decrease in output and productivity. The adaptation processes are characteristic for the economies of the 2000s when the countries’ economies of the 1990s were significantly influenced by the changes in the oil prices (Jimenez-Rodrıguez and Sanchez 203-205).

To understand these processes in perspective, it is necessary to refer to the effect of the changes in oil prices on all the GDP components separately while focusing on the examples of the United States and India as oil-importing countries, the United Kingdom as the oil-exporting country, and Saudi Arabia as the OPEC country.

The relationship between the changes in the oil prices and personal consumption expenditures is obvious, and it is related as the nonlinear and asymmetric relation. High oil prices can affect the consumer spending more intensively in comparison with the decreased prices. As a result, the personal consumption expenditures are reduced (Lescaroux and Mignon 6). However, these processes are different in various countries.

During the 1995-2005, the changes in the United States’ personal consumption expenditures depend on the general state of the country’s economy. Thus, the fall of the oil prices in 1998-1999 caused the increase of personal consumption expenditures in 8%, when the increase in oil prices of 2004-2005 was less obvious and caused the reduction of personal consumption expenditures only in 3% (“The World Bank”).

In India, the increase in oil prices in the 1990s influenced personal consumption expenditures countercyclically, while reducing them in more than 9%. The similar numbers are observed in relation to the period of 2000-2005 (“IndexMundi”; “The World Bank”).

The opposite situation is typical for the United Kingdom and Saudi Arabia. In the United Kingdom, the relationships between the rising oil prices and personal consumption expenditures are stable during 1995-2005, and they follow the procyclical principle because the significant reduction is not observed. The changes in the impact vary from 5% in 1995 to 4.7% in 2005 (“The World Bank”).

In Saudi Arabia, the changes in the oil prices influence the private consumption positively, and the rises in the oil prices lead to the increase in the personal consumption expenditures in 12% in 2005. However, the situation for 1995 is different because of the obvious rise only in 0.3% (Mehrara 14; “The World Bank”).

While comparing the results, it is possible to note that the changes in the countries’ personal consumption expenditures depend significantly on the country’s status. Thus, the oil-importing countries such as the United States and India are inclined to suffer from the rises in oil prices because the consumption is in direct relationship with the disposable income.

However, the rises in oil prices can contribute to the growth of the GDP components in relation to Saudi Arabia as the OPEC country and the United Kingdom as the oil-exporting country (“The World Bank”).

The gross private domestic investment is one more measure which is influenced significantly by any changes in the oil prices because it can be discussed as the indicator of the economy’s productive capacity in the future, and the changes in these parameters directly depend on the changes in the country’s general economy.

The raisings in the oil prices consequently cause the raising of the companies’ costs. The gross private domestic investment in the United States depended significantly on the changes in the oil prices in 1998-1999 when the prices fell, and the productivity increased. As a result, the GDP increased in 0.7% in comparison with the previous years (“The World Bank”). In the 2000s, the economy of the USA adapted to the rises and falls in the oil prices (Appendix 1; “IndexMundi”).

India could not adapt to the oil price changes effectively, because the GDP growth led to the increased oil demand. As a result, in 2005, GDP the growth was 9.2%, and the oil demand increased in 11% (“The World Bank”). The Indian companies had to adapt to the new demand, and the gross private domestic investment was influenced rather negatively (Guivarch and Mathy 353; “IndexMundi”).

In the United Kingdom, the increase in oil prices in the 1990s typically led to the reduction in the gross private domestic investment in 5-7% (“The World Bank”). The situation stabilised in 2002, when the reduction oil prices was observed (“IndexMundi”).The gross private domestic investment in Saudi Arabia was not caused by the changes in the oil prices of 1996-1997 and 1999 years.

Moreover, the stable GDP growth associated with the stable gross private domestic investment was observed in Saudi Arabia during the period of 2000-2005 because the country increased her oil imports (Mehrara 8-9). The economy developed according to the procyclical principle. In this case, oil-importing countries are rather vulnerable in relation to the changes in the oil prices while discussing the gross private domestic investment factor.

The next important GDP component is the government spending or government expenditure which changes according to the changes in the oil prices because of the governments’ tasks to predict and stable oil prices before determining policies and expenditures for the next year. The United States demonstrate the effective adaptation strategies in relation to predicting the changes in the oil prices and government spending.

However, the country experienced problems in 2004 because of the economic crises and unexpected increase in oil prices. The GDP growth was slowed in 0.5%. The similar situation was observed in the United Kingdom in spite of the country’s status as the oil-exporting state (“IndexMundi”). The significant changes in the oil prices led to decreases in government spending to adapt to the crises, and finally, to the decreased GDP growth.

India experienced the reduction in government spending in 2% during 1996-1997 and in 3.5% in 2004 (Guivarch and Mathy 352; “The World Bank”). In Saudi Arabia, the situation changed dramatically since 1995, and the increase in government spending was proportional to the increase in oil prices in 2004-2005 (“IndexMundi”). Comparing the examples, it is possible to determine the positive role of the oil price changes for the economy of the OPEC country.

The final GDP component is the net exports which is closely associated with the question of the oil import and export, but this indicator is not directly influenced by the fluctuation in the oil prices. The United States is the oil-importing country, and the changes in the oil prices cause the net export numbers directly. In 1997, the export prices decreased and the import prices increased while changing the net export numbers (Appendix 2; “IndexMundi”).

The GDP growth was slowed. In 2001, the situation was rather opposite. Having constantly increased GDP measures, India tried to stabilise the net export in 2001 and 2004. In the United Kingdom, high export prices in 2004 could not contribute to the growth of GDP because of the increasing oil prices (“IndexMundi”).

On the contrary, in Saudi Arabia any changes in the oil prices led to improving measures associated with the net export (Mehrara 8-9). From this point, the oil-importing countries demonstrate the high dependence on the changes in oil prices than the OPEC countries because they influence these changes directly and the oil-exporting countries because they can benefit from the changes significantly.

While discussing the effect of the oil price changes on the GDP in OPEC and oil-exporting countries and oil-importing countries, it is possible to expect rather opposite results, as it is stated with references to the examples of the United States, the United Kingdom, Saudi Arabia, and India.

Nevertheless, in the 2000s, the United States and India demonstrate the high results in relation to adapting to long-lasting price increases or decreases, and Saudi Arabia and the United Kingdom can be discussed as the countries which benefit significantly from the increases in oil prices when the decreases in oil prices lead to the negative changes in the economic dynamics and the level of these countries’ GDP.

Works Cited

Guivarch, Céline, and Sandrine Mathy. “Energy-GDP Decoupling in a Second Best World – a Case Study on India”. Climatic Change 113.1 (2012): 339–356. Print.

IndexMundi. 2014. Web. <>.

Jimenez-Rodrıguez, Rebeca, and Marcelo Sanchez. “Oil Price Shocks and Real GDP Growth: Empirical Evidence for Some OECD Countries”. Applied Economics 37.1 (2005): 201–228. Print.

Lescaroux, Francois, and Valerie Mignon. “On the Influence of Oil Prices on Economic Activity and Other Macroeconomic and Financial Variables”. CEPII Working Papers 5.1 (2008): 1-46. Print.

Mehrara, Mohsen. “Energy-GDP Relationship for Oil-Exporting Countries: Iran, Kuwait and Saudi Arabia”. Organization of the Petroleum Exporting Countries 1.2 (2007): 1-17. Print.

The World Bank. 2014. Web. <>.

This research paper on Effect of Oil Prices on Different Countries’ GDP was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.

Need a custom Research Paper sample written from scratch by
professional specifically for you?

Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar

301 certified writers online

GET WRITING HELP
Cite This paper

Select a referencing style:

Reference

IvyPanda. (2019, June 10). Effect of Oil Prices on Different Countries’ GDP. Retrieved from https://ivypanda.com/essays/effect-of-oil-prices-on-different-countries-gdp/

Work Cited

"Effect of Oil Prices on Different Countries’ GDP." IvyPanda, 10 June 2019, ivypanda.com/essays/effect-of-oil-prices-on-different-countries-gdp/.

1. IvyPanda. "Effect of Oil Prices on Different Countries’ GDP." June 10, 2019. https://ivypanda.com/essays/effect-of-oil-prices-on-different-countries-gdp/.


Bibliography


IvyPanda. "Effect of Oil Prices on Different Countries’ GDP." June 10, 2019. https://ivypanda.com/essays/effect-of-oil-prices-on-different-countries-gdp/.

References

IvyPanda. 2019. "Effect of Oil Prices on Different Countries’ GDP." June 10, 2019. https://ivypanda.com/essays/effect-of-oil-prices-on-different-countries-gdp/.

References

IvyPanda. (2019) 'Effect of Oil Prices on Different Countries’ GDP'. 10 June.

Related papers