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Export Growth - Fuel Price Nexus in Developing Countries: Real or False Concern?

Abstract:
This paper investigates the impact of domestic fuel price increases on export growth in a sample of 77 developing countries over the period 2000-2014. Using a fixed-effect estimator and the local projection approach, we find that an increase in domestic gasoline or diesel price adversely affects real non-fuel export growth, with the impact phasing out within two years after the shock. The impact is mainly noticeable in countries with a high-energy dependency ratio and where access to electricity is limited. Further, large fuel price shocks do not seem to lead to disproportionately large changes in exports, suggesting that neither the gradualism nor the shock therapy approach in fuel subsidy reforms dominates. In countries where the export sector is vulnerable to fuel price shocks, appropriate mitigating measures should be designed to smooth the transition to higher fuel prices.

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Keywords: Retail fuel prices, Fuel subsidies, Export growth, Developing countries

DOI: 10.5547/01956574.43.3.kkpo

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Published in Volume 43, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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