1. Impacts of Oil Price Changes Korea Development Institute
on Korean Economy
March, 2006
Hangyong Lee
Korea Development Institute

2. Contents - Growth rate - Market share
1. World oil demand
- Growth rate
- Market share
2. The impact of oil price changes
- A simple calculation
- Simulation results
3. Two issues
- Industry structure in Korea
- Demand shock vs supply shock

3. 1. Growth Rate of World Oil Demand
Growth rates slowed down in Japan and Korea
1971~2000
2000~2004
World
49.0 (1.3)
6.9 (1.7) US
22.2 (0.7)
4.9 (1.2)
Canada
22.7 (0.7)
14.2 (3.3)
Europe
-4.7 (-0.2)
3.2 (0.8)
Asia
169.1 (3.3)
12.8 (3.0)
China
447.4 (5.7)
40.3 (8.5)
Japan
18.0 (0.6)
-3.9 (-1.0)
Korea
837.5 (7.5)
0.2 (0.1)
Oceania
59.7 (1.6)
4.6 (1.1)
Other
59.7 (3.3)
4.6 (1.4)
Note: Numbers in parentheses are average annual growth rates
Source: Oil Information (2005), IEA

4. 2. Market Share of World Oil Demand
Asia’s market share has increased
1971
2004 US
30.6
24.6
Canada
3.1
2.7
Europe
40.8
25.2
Asia
14.5
27.7
China
1.6
7.9
Japan
9.2
6.5
Korea
0.4
2.6
Oceania
1.2
1.3
Source: Oil Information (2005), IEA

5. 3. Oil Import/GDP in Korea
Oil Import/GDP has increased due to higher oil prices

6. 4. Impacts of 10% Increase in Oil Price
A Simple Calculation
 Oil import: 42.6 bil$ in 2005
 15% of total import and 4-6% of GDP
 10% increase in oil price would reduce 0.5% of GDP
KDI Model Simulation Results
 Cho and Kim(2005), Shin(2005)
GDP: -0.21%, CPI: 0.12%
Private Consumption: -0.12%, Investment: -0.87%
 Bank of Korea(2005)

7. 5. Two Issues Major industries in Korea are not oil-dependent
 Composition of exporting goods
 Sensitivities of profits/output across industries
(without changing output prices)
Oil Price increases driven by demand shocks partially
offset the adverse effects
 China’s rapid growth leads to an increase in exports to
China

8. 6. Composition of Korea’s Exporting Goods
Main exporting goods are IT related products (25.2%)
and motor vehicles and parts (13.4%)
1990
1995
2000
2005
Heavy industry & chemical products
56.4
72.7
81.0
89.6
Semiconductor
7.0
14.1
15.1
10.5
Motor vehicles and parts
3.9
7.5
8.9
13.4
Steel products
6.5
5.8
4.4
5.9
Chemicals
1.8
4.6
5.5
7.3
General machinery and equipment
2.7
4.5
4.2
7.8
Computer
3.1
3.5
8.4
5.0
Communications equipment
0.8
1.2
4.7
9.7
Ships
4.3
4.8
6.2
Light industry products
38.5
22.5
16.2

9. 7. Impacts on Profits (Manufacturing)
Changes (%p)
Chemical products
-0.58
Nonmetallic mineral products
-0.43
Coal products
-0.41
Fabricated metal products
-0.10
Other manufacturing products
-0.09
Textile and clothing
-0.08
Paper, Printing, and Publishing
Primary metal products
-0.07
Food and Beverage
-0.06
General machinery and equipment
Electronic components and accessories
-0.05
Motor vehicles and parts
Other transportation equipment
-0.04
Household electronic appliances
-0.03
Precision instruments
-0.02
Semiconductor
-0.01
IT related equipments
Source: Kim and Kim (2005)

10. 8. Impacts on Profits (Service)
Changes (%p)
Transportation and warehousing
-1.00
Steam and hot water supply
-0.92
Electric services
-0.42
Restaurants and hotels
-0.17
Wholesale and retail trade
-0.13
Manufactured gas supply
-0.12
Public administration and services
-0.10
Education and health services
-0.08
Social and other services
Construction
-0.06
Water supply
-0.03
Communications and broadcasting
-0.02
Finance & insurance
Real estate and business services
-0.01
Source: Kim and Kim (2005)

11. 9. Korea’s Export Structure (Destination)
The share of exports to the US and Japan has declined,
but the share of exports to China has increased
 China’s rapid growth leads to an increase in exports to
China
1990
1995
2000
2005 US
29.8
19.3
21.8
14.5
Japan
19.4
13.6
11.9
8.4 EU
15.4
13.0
ASEAN
8.0
14.4
11.7
9.6
China
0.9
7.3
10.7

12. Thank you!