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Oil price and potential output growth in the long run

Author

Listed:
  • G. LALANNE

    (Insee)

  • E. POULIQUEN

    (Insee)

  • O. SIMON

    (Insee)

Abstract

The goal of this paper is to gauge the impact of the expected oil price increase on the potential output growth of the French economy in the long run. This potential output exercise is conducted using CES (Constant Elasticity of Substitution) production functions featuring three factors: capital, labour and energy. Moreover, the sectoral composition of the economy is taken into account through a breaking down of the economy into four sectors (manufacturing industry, construction, market services, and agriculture). The model yields a potential output of growth of about 2 % per year in the absence of oil price variations. The various scenarios of oil price increases result in a shortage of growth between 0.1 and 0.6 % per year in the medium run with respect to the constant oil price scenario. The major part of this growth shortage channels through a negative impact on the manufacturing sector, which is highly energy-intensive and also the engine of technical progress.

Suggested Citation

  • G. Lalanne & E. Pouliquen & O. Simon, 2009. "Oil price and potential output growth in the long run," Documents de Travail de l'Insee - INSEE Working Papers g2009-09, Institut National de la Statistique et des Etudes Economiques.
    • Handle: RePEc:nse:doctra:g2009-09
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    File URL: https://www.bnsp.insee.fr/ark:/12148/bc6p06zqvzp/f1.pdf
    File Function: Document de travail de la DESE numéro G2009/09
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    More about this item

    Keywords

    Potential output growth; Unbalanced growth; Oil price;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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