Oil price and organizational asymmetries in a North-South-OPEC context

Abstract

The object of this paper is to highlight the contribution that a dual economy in the South as organizational asimmetry makes to the oil price rise process and its effects on welfare, first, when the North is Neoclassical, secondly, when the North behaves a la Taylor. The model shows that when the oil price rises, despite the improvement of the Southern terms of trade vis-a-vis the North, welfare in the South may deteriorate due to a decline in the levels of output and employment in the modern-advanced sector. When the North is Neoclassical, employment in the modern sector unambiguously falls. In the "structuralist" perspective, when the North is Neokeynesian, the South's level of employment in the modern sector will fall whenever OPEC's marginal propensity to import is sufficiently low. Whereas in the first framework, the oil intensiveness of Southern output is critical to the results, in the second the critical parameter is OPEC's recycling coefficient. In general, the analysis increases our understanding of why region respond differently to the same external shock and how from different organizational asimmetries we should derive alternative policy implications. With the current fall in oil prices, the topic promises to be relevant for some time, although the direction of the shocks has been reversed.