International recycling of petrodollars

Ruiz, Juan and Vilarrubia, Josep (2006): International recycling of petrodollars. Published in: Banco de España, Documento Ocasional (Bank of Spain, Occasional Papers) No. 0605 (April 2006)

Abstract

The continued rise in oil prices since 2002 has resulted in a significant increase in export revenue for oil exporting countries. This increase in the price of oil and other commodities means that OPEC countries and Russia have received, between 2003 and 2006, a windfall of 1.3 trillion dollars with respect to their export level in 2002. This paper analyzes, using the limited data available, the recycling of these resources back to the world economy through the trade channel, via higher imports, or the financial channel, via an increase in the net external asset position of these countries. Our results show that around 50% of the windfall revenue has been used to increase imports, while the rest has been directed towards international reserve accumulation and other improvements in the net asset position of these countries. Comparing the current oil price increase with previous ones, such as those resulting from the tightening of oil supply in the 70’s, we find that the trade channel has been more important in the current episode than in previous ones. This can be attributed to (i) the perception of a more permanent increase in the price of oil in the context of rising demand, and (ii) the gradualism of the current oil price increase, which has allowed a stronger response from imports.

• Item Type: MPRA Paper
• Language: English
• Keywords: Oil exporting countries; oil revenues; oil windfall; recycling; trade; imports; exports; reserve accumulation; marginal propensity to import; petrodollars; OPEC; Russia
• Subjects: F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade

References

BARRELL, R., and O. POMERANTZ (2004). Oil Prices and the World Economy, NIESR Discussion Paper 242. BIS (2005). Quarterly Review, December. IMF (2005). Middle East and Central Asia Regional Economic Outlook, September. IMF (2006). "Oil Prices and Global Imbalances", Chapter II of the World Economic Outlook, April. OECD (2005). Economic Outlook 78, December. RUIZ, J. (2004). "Una valoración de la evolución reciente del precio del petróleo", Boletín Económico, December, Banco de España.