Energy-Economy Interactions in Developing Countries

Abstract

Since 1973 the global economy has been going through a difficult transition period. After a long period of growth, characterized in part by low oil prices and increased reliance on production in a few large oil-exporting countries, it is moving toward a new equilibrium characterized by substantially higher energy costs and an energy supply base more diversified in terms of fuels as well as country import sources. This transition period is far from over. Although developing countries use only a small percentage of the world's oil (about one-sixth), their economic performance has been adversely affected by higher energy costs. Most developing countries import oil and have been caught in a dilemma of increasing foreign debt and/or reducing economic growth. On average, in 1981 the oil-importing LDCs spent 38 percent of their export earnings on imported oil, and domestic energy investments accounted for about 25 percent of aggregate investment. These percentages may increase because of industrialization plans and diminishing supplies of traditional fuels for household and agricultural use.