ABSTRACT
This chapter provides a brief survey of the literature on models relating energy scarcity and economic growth. Higher Oil Prices and the World Economy, the Adjustment Problem, is principally concerned with the short-term effects of the late 1973 quadrupling of oil prices by OPEC. The analysis of the impact of energy prices on the level of production is similar to the effect-of-a-tariff analysis in international trade. Gunning, Osterrieth and Waelbroeck (GOW) assume the economy produces two goods, energy and other goods, with diminishing returns for any factor, but with constant returns to scale in all factors. Energy needs intermediate input of material for its production, and material production similarly requires energy. Total investment should decline, due to lower savings resulting from the loss of income. Capital imports from oil producers can mitigate the effects of higher energy prices on the economy.
