Effects of the oil export price increase on the economy : theoretical and empirical issues ; a CGE analysis of the case of Kazakhstan

This study is an experimental study that examines the effects of the oil export price increase in both theoretical and empirical contexts considering the Kazakhstani economy as a particular case, and discusses the effects of different macro closure rules. This study has been motivated by several factors. First, the theoretical literature on the effects of the oil export price increase is to some extent limited as it uses the Salter-Swan framework that does not incorporate two-way trade or it assumes the oil sector an enclave. Second, the empirical literature on the effects of the oil export price increase on Kazakhstan using an economy-wide framework is limited as well. To the best of my knowledge there are no studies available that quantify these effects on Kazakhstani economy in isolation, which, however, are necessary to study since the oil prices have been soaring in the recent decade and since Kazakhstan has large oil resources. Third, although macro closure rules lie at the core of the static CGE models and different macro closure rules might trigger different results, there is hardly anything in the literature that tests the effects of different macro closure rules in detailed theoretical models. The theoretical literature on macro closure rules remains limited, as it primarily considers only one-sector models, which obviously fail to incorporate fully the intricacies of real-life multisector planning models. As a result, most of the CGE modelers conventionally do not explain the rationale behind their choice of macro closure rules, although the results might be different under different macro closure rules. To overcome these limitations and test the effects of alternative macro closure rules, this study develops several stylized models and applies Lofgren et al.’s (2002) model to the Kazakhstani economy.