Seminar on June 1, 2015



Asymmetry in Economic Responses to Oil Price Shocks: The Case of Kuwait


Manal R. Shebabi,

(Economics Department, Business School, The University of Western Australia) 




Petrostates, countries that rely heavily on revenues from oil exports, are subject to boom-bust shocks resulting from petroleum price volatility.  Since mid-2014, Kuwait, a small open petroleum exporting economy, has experienced a substantial drop in its petroleum export price, foreshadowing exchange rate instability, fiscal pressures and real negative implications for overall economic performance.  If and when a petroleum price recovery occurs it will be expansionary, reversing the negative implications of the recent slump.  The subtle implication of some writings on this is that upswings are symmetrical with downswings, yet recent work on the Australian economy suggests that there is substantial asymmetry.  Positive terms of trade shocks yield improvements in performance that are larger than the losses that occur when equiproportional negative shocks occur.  This asymmetry is shown to depend on the structure of the whole economy and on government policy responses.  As part of a larger research project focusing on economic policies in petrostates, this paper outlines an on-going analysis of asymmetry in economic performance for the case of Kuwait.  A general equilibrium framework is to be used that explicitly represents external financial flows, domestic fiscal policy, oligopoly industrial structures and government regulation.  To this end a Kuwaiti input-output table is to be combined with data from the national accounts, government accounts and the balance of payments accounts in the construction of a model database in the form of an augmented social accounting matrix.  Additional information on industrial structure is then required to complete the model.  The presentation offers some discussion of the reasons why asymmetry of performance responses might be expected and it illustrates the application of this model to the Australian case.  The relevance of the proposed analysis for Kuwait is then discussed, noting that, while Kuwait's relatively specialised economy might possibly experience less asymmetry than larger, more diversified ones, downside performance risks can be lessened by the control of oligopoly rents during booms and the judicious combination of fiscal policy with Kuwait's already effective sovereign wealth fund.


Short Bio: 


Manal R. Shehabi is a PhD candidate in economics at the University of Western Australia where she is a recipient of prestigious scholarships for doctoral studies from the Australian Government (IPRS and APA scholarships). Her doctoral research focuses on the effects of economics policies, both at the micro and macroeconomic levels, on the economic performance of petrostates through country-wide economic modeling. This research takes into account problems associated with oil price volatility, the geopolitics of the global petroleum trade and the political economy of oil. To that end, an economy-wide model of the Kuwaiti economy is currently under construction that accounts for commodity and service oligopoly rents, price distortions, structural characteristics of the energy market, labor force composition and changing global demand.


All interested are cordially invited.  


DATE:  June 1, 2015

TIME:  Monday, 15:30-16:30