What Is The Relationship Between Oil And Economic Development

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THE RELATIONSHIP BETWEEN OIL AND ECONOMIC DEVELOPMENT
The world is major large dependent on oil products, therefore reviewing the relationship between oil products and the growth of the economy is very important. The prices of oil can be used as an indicator of GDP growth of the economy. It is important to also separate the increase and decrease in the prices of oils as an asymmetric response to the economic activities of the country. In today’s world the price of oil is very important given the fact that oil is the largest international commodity that is traded international both in volume and value terms. Therefore, it is very important to review some of the abrupt changes in prices of oil in both oil producing and consuming countries. According to growth models the transmission mechanisms between the prices of oils and OPEC countries shows the causality between the relationship in both short term and long term. Due to such reasons, the paper explores the relationship that exists between crude oils and economic growth.
Increase in the oil prices results to the increase in GDP and economic growth. Increase in the demand of oil has resulted to increase in the Gross Domestic Product (GDP) (Alexeev, Michael, & Shlomo, 154). The perception that oil has negative effects on the growth of the economy has resulted to closes correlations in the prices of oils and economic downturns. The price elasticity of oils is always thought as negative. That is the demand tends to fail by certain percentages for a certain increase in the percentage price in some input factors. In this case increase in the prices of oil should be considered positive in the exporting countries and negative in some of the oil importing countries (Investment and the Digital Economy, pg 215). An increase in the price of oils, results to the transfer of income from importing to exporting countries through a shift in the terms of trade. The impact of this is, is that the global demand impact will be dependent on the extra revenue accruing to the oil exporters. In order to boost the economic growth of oil exporting countries provided with the fact that the prices of oil are relatively, high there is poor economic growth in the importing countries such that the effect should always be negative. However, Czarnowski, Ireneusz, Robert, & Lakhmi, Pg 214, stated that oil price shock itself is not a huge contributor to GDP fluctuations in the instance where there is 10% increase in the price of oil; it means that there is only 0.5% decline in private sector output.
The following are some if the effects of increasing the process of oil in exporting countries. Increase in the price of oils for a net exporter country results in increase in the real national income of the country through high export earnings. These nations are always at risk because if the prices tends to get much higher and stay high (Czarnowski, Ireneusz, Robert, & Lakhmi, Pg 214). The growth of Gross Domestic Product in the consuming countries will decline and the demand and price of the oil will automatically reduce. Additions increase on the also increase in the prices of oils results to increase in the exploration and development of budg...