Can Cheap Oil Hurt Net Importers? Evidence from the Philippines

Abstract

Conventional wisdom suggests that oil price increases have a negative effect on the output of oil-importing countries. This is grounded on the experience of the United States between the 1940s and the late 1980s, where recessions were generally preceded by oil price increases. This paper evaluates the impact of oil price shocks on the Philippines—a developing country and a net oil-importing economy. Following Kilian’s (2008) structural decomposition of real oil price change, we find indications that the 2008–2009 and 2014–2015 oil price drops may have lowered the Philippine economy’s output growth, potentially due to the economy’s reliance on remittances from abroad and the export market.