Opec Respending and the Economic Impact of an Increase in the Price of Oil

An empirical measure of OPEC respending is developed in this paper and used to compare the situation in 1979/80 with that in 1973/74. A world trade model system is used to simulate the impact of an increase in the price of oil on the industrial countries, under various assumptions about OPEC respending. The simulation results suggest that the degree of respending is crucial for the impact of the oil price increase on the industrial economies and that Europe is more sensitive to variations in OPEC respending than the USA.