The role of technological change which has led to a decline in the energy intensity of material production is obviously also important. But its importance should not be overplayed to the extent of seeing this crucial input as no longer relevant for production and pricing decisions. At the margin, oil prices can still mean very great changes in overall input costs and can affect production substantially. And there is no question that the western powers themselves are strongly aware of how important it is for the stability of their economies to ensure a continuous supply of a relatively cheap energy source.
 
What all this suggests, then, is that while there are certain forces in the international economy which have limited the ripple effects of the latest and rather muted oil price shock, this does not mean that a more intense or prolonged shock will not have adverse effects on inflation, output and employment.
 
So much for the effect on the world economy; what of the effect on the oil exporters themselves ? It has been one of the unfortunate ironies of the OPEC attempts to increase its member countries' share of world income, that oil exports have only in rare cases ensured either development or even growth on par with non-oil exporting countries.
 
One of the important reasons has been because most developing country oil exporters have used their oil resources as implicit collateral to access external capital in the form of external commercial borrowings, and the interest rates they have had to pay have usually been moving along with the movement of oil prices themselves. This is evident from Charts 5 and 6, which show that an oil-exporting borrowing country would have experienced rather little advantage of oil prices changes relative to interest charges on debt.
Chart 5 >> Chart 6 >>
 
Chart 7 shows the comparative performance of developing country oil exporters, compared to non-oil exporting developing countries, in terms of GDP growth over the period 1980 to 1997. Apart from Sub-Saharan Africa, all the other major regions show that GDP growth was significantly higher for non-oil exporters.
Chart 7 >>
 
Some of the reason for this may lie in the poorer performance in terms of investment, of the oil-exporting developing countries. As Chart 8 shows, once again in West Asia and North Africa, as well as in Latin America and the Caribbean, oil exporting countries had significantly lower (and sometimes negative) rates of growth of investment over this period. Once again, Sub-Saharan Africa shows the opposite tendency, but only to a limited extent.
Chart 8 >>
 
Investment rates have turned out to be so low and falling, not only because of poor performance in terms of domestic savings. Interestingly, net capital flows - which should ideally be countercyclical in order to smoothen adjustment in oil-exporting countries - have exhibited pronounced pro-cyclical tendencies. This is illustrated in Table 1. In periods when the oil price has changed substantially upwards, there net capital inflows have also been the highest. And when the prices has fallen, there has been net outflow of capital. Even the amounts seem to vary proportionately with the oil price change.
Table 1 >>
 
So it is not just that domestically oil-exporting countries have not been able to use savings rates changes to smoothen out or stabilise domestic income and absorption over the cycle. It is also that foreign capital itself has responded in a highly pro-cyclical manner, thereby accentuating the booms and slumps.
 
In conclusion, it should be emphasised that, despite the premature celebration in many western capital, OPEC still has the potential for altering oil price levels, and therefore making a significant on inflation, output and employment if such changes are sustained. The saddest part of this story is that thus far, despite this potential power, it has not really been able to ensure a feasible and sustainable development trajectory for most of its members.