The effect of oil price increases on four oil-poor developing countries A comparative analysis zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIH Hermann Dick, Sanjeev Gupta, David Vincent and Herbert Voigt zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFED Computable general equilibrium models are used to compare, for four oil-poor developing countries (Ivory Coast, Kenya, South Korea, Turkey) the short- and medium-run adjustment pressures arising from the second oil price shock. The results emphasize the extent of expenditure switching and expenditure and w age reduction needed to accommodate the shock in each country. Cross-country variations in the extent of required adjustment are traced to key structural differences between the four economies. Keywords: Oil shocks; Adjustment; Developing countries The large real oil price increases of the early and late 1970s have set in train significant resource transfers from energy-poor to energy-rich countries. In accom- modating these transfers both energy exporting and importing economies have been confronted with adjust- ment pressures. For the former group, the adjustment pressures have arisen from the need for these economies to accommodate a favourable shift in their foreign terms of trade. For energy-poor countries, however, the required adjustment process has much less palatable consequences for economic growth and the real income aspirations of the population. H. Dick, D. Vincent and H. Voigt are with the Kiel Institute of World Economics, Diisternbrooker Weg 120, D-2300 Kiel 1, West Germany. S. Gupta, formerly with Kiel Institute of World Economics, is now with the Federation of Indian Chambers of Commerce and Industry, Federation House, Tansen Marg, New Delhi, India. This paper reports research undertaken with financial support provided by the Deutsche Forschungsgemeinschaft. Final manuscript received 30 March 1983. Our concern here is with four developing countries in the latter group: Ivory Coast, Kenya, South Korea and Turkey. As well as representing various levels of oil ‘poorness’ these countries exhibit interesting differ- ences in resource endowments, the industrial composition of their gross domestic products, the oil intensity of their production technologies, the occupational compo- sition of their labour forces, their openness to world trade and the commodity composition of their exports and imports. By means of multisectoral economy-wide models specified to capture these and other country- specific characteristics we quantify the adjustment pressures imposed on them by what has now become known as the second (OPEC) oil shock of the late 197os.* A feature of the country models is their design flexi- bility and simple solution algorithm. We exploit this by *Recent studies by Balassa’ and the World Bank’ using trend analysis have looked at the effects of the first world oil shock on various developing economies and the ensuing policy response in these countries. Our study differs from these in that it employs formal, country-specific models which allow for the effects of an oil shock to be studied independently of the effects of other shocks. 0140-9883/84/010059-12 $03.00 0 1984 Butterworth & Co (Publishers) Ltd 59