Importantly, the Computable General Equilibrium (CGE) model allows for adjustment mechanisms such as endogenous price changes, full capital and labor mobility across sectors, and shifting trade patterns in response to changes in relative prices. In a real-world setting, there may be rigidities that prevent adjustments in the short run that are not covered by the model. Hence, while both methodologies contribute valuable insights and derive a common pattern relating economic dependency on oil exports and vulnerability to oil price shocks, the quantification may lie in the middle of both estimates.
More broadly, the analyses presented here connect to the literature on the natural resource curse [35,36,37,38] that posits that regions with a high endowment of natural resources, such as oil, experience lower economic growth rates in the long run. Institutions are a key underlying factor for the theorem [39,40], but also the importance of (price) volatility has been revealed as a crucial feature by earlier work . Literature shows  that long-run economic effects of commodity price booms may run counter to short-run responses to price shocks. The model-based assessment presented in this paper does not include long-run effects, but future modeling work could consider these dynamics in relation to wealth accumulation and investment expenditure of oil rents .
A related strand of literature studies the connection between commodity prices and political instability and conflict. The evidence on commodity price movements and the outbreak and intensity of conflict is mixed [44,45,46,47,48], and different theoretical views have been put forward to explain the empirical results. On one hand, higher commodity prices may improve economic opportunities, and therefore make crime and rebellion less attractive options. On the other hand, high resource rents may raise the expected pay-off of (potentially violent) attempts to seize ownership of natural resources, which could imply a positive relationship between commodity prices and conflicts.
The analysis we present here does not aim to provide claims about the causality of conflicts in resource-rich countries. Figure 11 does, however, suggest an increasing trend between our estimates of the elasticity of GDP to the oil price and battle-related deaths over the period of 1990–2014, hinting that economic exposure to oil price fluctuations could relate to violent conflict in this subset of countries. A detailed analysis of the underlying mechanisms is beyond the scope of this paper, but the positive correlation displayed in Figure 11 is in line with earlier evidence that relates natural resource endowment and state fragility .
Figure 11. Relation between the exposure of macroeconomic performance to the oil price and battle-related deaths per million people (1990–2014). Size of the bubbles indicates population size in 2014. Data source: own estimates and .
The impact of conflicts does not stop at jurisdictional borders, as highlighted by the recent European migrant crisis. Migration flows into neighboring countries, but also historical ties play a role in determining migration patterns (e.g., France–Algeria and Portugal–Angola; see Figure A1 and Figure A2 in Appendix A).
Finally, the key question is what an appropriate policy response to oil market volatility entails. Policies that reduce the exposure to oil price fluctuations can include the establishment of a SWF; fiscal and monetary policy ; the distribution of resource rents ; a well-considered spending of rents, for example, on education ; and an economic and energy-related diversification strategy. If a global shift away from fossil fuels in the context of ambitious global climate policies implied by the Paris Agreement is to bring low oil prices for a sustained period, challenges lie ahead to reconcile a low-carbon pathway (Sustainable Development Goal 13: Climate Action) with an inclusive growth story (Sustainable Development Goal 1: No Poverty) in which also oil-producing regions prosper.
By illustrating the sensitivity of already vulnerable states to oil price fluctuations, this paper highlights the gains from political action that steers economies away from the reliance on oil production towards a more sustainable growth path.
This paper is based on earlier work presented in a JRC Science for Policy Report , which has benefitted from the comments of our colleagues at DG ENER and DG JRC.
Alban Kitous and Kimon Keramidas performed econometric analysis; Toon Vandyck did macroeconomic assessment; Alban Kitous, Kimon Keramidas, and Toon Vandyck wrote the paper; Luis Rey Los Santos and Krzysztof Wojtowicz analyzed data; Bert Saveyn contributed to the writing and analysis.
Conflicts of Interest
The authors declare no conflict of interest.
The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission.
Figure A1. Foreign residents (in millions) originating from oil-exporting countries (mid-2015). Note: The figures are the foreign residents and do not picture migration flows in a certain time period. They do not (fully) account for second- or later generation immigrants which (also) hold the nationality of the destination country. Data source: . Abbreviations: The Gulf Cooperation Council (GCC) includes Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates and Saudi Arabia (which is shown separately here).
Figure A2. Origin of foreign residents in the EU28 (mid-2015). Data source: .
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