Oil price and potential output growth in the long run

The goal of this paper is to gauge the impact of the expected oil price increase on the potential output growth of the French economy in the long run. This potential output exercise is conducted using CES (Constant Elasticity of Substitution) production functions featuring three factors: capital, labour and energy. Moreover, the sectoral composition of the economy is taken into account through a breaking down of the economy into four sectors (manufacturing industry, construction, market services, and agriculture). The model yields a potential output of growth of about 2 % per year in the absence of oil price variations. The various scenarios of oil price increases result in a shortage of growth between 0.1 and 0.6 % per year in the medium run with respect to the constant oil price scenario. The major part of this growth shortage channels through a negative impact on the manufacturing sector, which is highly energy-intensive and also the engine of technical progress.