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Billions of dollars: counting the cost of oil price shocks across the developing world

Written by Dirk Willem te Velde

Global and African output could drop by as much as 1% over the next two years as a result of recent oil price rises, according to research from the Overseas Development Institute (ODI). The effects would be most severely felt across some African oil importers where some countries might suffer additional costs worth 4% in GDP

The newly released research contains an oil price vulnerability index detailing country by country levels of exposure to rising prices across the world. The index was created by Dirk Willem te Velde, Head of the ODI’s International Economic Development Group.

An accompanying research study also spells out the possible consequences of drops in GDP, suggesting a 1% drop in African GDP could lead to the loss of 5,000 infant lives and another 10,000 children owing to decreased funding for healthcare services.  The study goes on to reveal that it is often the poorest within developing countries that are more exposed to an oil price rise because their consumption is most dependent on oil.

Countries likely to lose more than 3% of GDP as a result of a one-third increase in oil prices include Ghana, Honduras, Lesotho, Swaziland, Togo, Moldova and Nicaragua.

Dirk Willem te Velde said:

“The reduction in world GDP is because a higher oil price transfers money from countries with a higher propensity to spend to countries with a lower propensity to spend. The fact that many of the poorest countries will feel the most acute effects further compounds the need for these countries to pursue crisis resilient growth strategies. This has to involve becoming more fuel efficient because their vulnerability is rooted in their dependence on fuel intensive production. That way we can better insulate the world’s poorest from such price shocks.”

For more detail, read "Oil prices, poor countries and policy responses", a blog by Dirk Willem te Velde on his study.