The general equilibrium costs and impacts of oil price shocks in Newfoundland and Labrador

Robert Millard, Patrick Withey, Van Lantz, Thomas O. Ochuodho

Research output: Contribution to journalArticlepeer-review

6 Scopus citations


The 2014–2015 dramatic drop in world oil prices had devastating impacts on a global scale. We analyse economic costs and impacts of a negative oil price shock following the 2014–2015 decrease in oil prices on the provincial economy of Newfoundland and Labrador, Canada. We use a Dynamic Computable General Equilibrium model to estimate a drop in oil prices by inputting the estimated effect as a direct impact to royalties, which are the land input in the oil and gas sector of the provincial economy. We provide sensitivity to account for the duration and magnitude of the shock, as well as the timing of recovery. Our results suggest that a shock in the price of oil will have its most significant impact on GDP in the initial years. Over the first five years, the reduction in GDP due to this shock would be roughly 2.1% of GDP in our most realistic shock scenario, but could be much higher in other scenarios considered. A sharp drop in GDP over the first five years will be mitigated somewhat in the long run as the growth in oil prices rises; however, negative long run impacts to GDP persist due to the oil price shock in 2014–2015, and will worsen if there is a prolonged shock.

Original languageEnglish
Pages (from-to)192-198
Number of pages7
JournalEnergy Economics
StatePublished - Oct 2017

Bibliographical note

Funding Information:
This project was funded by the Collaborative Applied Research in Economics (CARE) initiative at Memorial University .

Publisher Copyright:
© 2017 Elsevier B.V.


  • Canada
  • Computable General Equilibrium
  • Energy price shocks

ASJC Scopus subject areas

  • Economics and Econometrics
  • Energy (all)


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