The multidimensional impacts of external price shocks on the Algerian economy by using of CGEM

Abstract

The global economy has gone through the past ten years a severe recession triggered by the financial catastrophe and the collapse of the commercial and industrial activity in the world. This slowdown has weighed its effects on the growth of economies around the world. Algeria, which is not fully integrated into the international economy, knowledge and know likely in the near future indirect effects of the crisis, but in a less severe than in Europe. Algeria has all the potential human and material to be a pivotal country in development at the Euro-Mediterranean and Arab Africa. This requires a development based on a coherence and visibility in the economic policy of the State. We propose in this paper an analysis of the multidimensional impacts of external price shocks on the Algerian economy with particular focus of hydrocarbon revenue. An applied computable general equilibrium model (CGEM) is utilized in my study to simulate the Algerian economic impact by three scenarios. First is food import price increase by 25 percent (scenario1), second is the oil price decrease by 30 percent (scenario2) and the finally scenario that combines scenario 1 and 2simultanneously (scenario 3).The results depict the multidimensional impacts on major macroeconomic indicators from recession to economic instability. My results indicate that the price catastrophe either in scenario 1 or 2 or in scenario 3, depress overall Algerian domestic output and exports. Reduced output also reduces employment thus causing a fall in household’s income and consumers can afford less quantity of  both domestic and imported goods, in the scenario 1, overall imports decreased by 0.3 percent. But in the scenario 2 and 3 increased by 2.05 and 3.21 percent respectively. Finally results were concerned highlight the structural weaknesses of the Algerian economy remains extroverted and strongly oriented towards the exploitation of unprocessed raw materials.

Keywords: External Shocks, Algerian Economy, Computable General Equilibrium Model