WELFARE EFFECTS OF RISING OIL PRICES IN OIL‐IMPORTING DEVELOPING COUNTRIES

Oil prices began climbing consistently in 2002, reaching a record high in July 2008. Though this trend slipped back thereafter, owing to the global economic crisis, oil prices seem to be gradually regaining upward movement. Through an analysis of counterfactual simulations based on a dynamic computable general equilibrium model, this paper shows that the negative impact on GDP of the most recent oil price boom has been substantial in six oil‐importing developing countries, as high as 2% to 3% of GDP per year in some cases, producing unemployment and higher consumer prices and, as a consequence, reduced welfare. Importantly, welfare losses have been much less for countries that have witnessed gains from higher export‐commodity prices. Even for these countries, however, policy action is called for to soften the impact of potential future oil price booms.