EN T

One measure of the importance of oil to an econ-omy is its “vulnerability, ” defined as the ratio of net imports of crude oil and oil products to GDP. A rise in oil prices both increases the value to the economy of any domestic oil production and decreases GDP according to the consumption of oil and oil products. For countries that consume more than they produce, a change in the balance of these two effects—the value of net oil imports—is a measure of the adjustment that will have to be made when oil prices rise (in the absence of other, offsetting exogenous shocks). The adjustment will have to be made by deflating the economy to restore the balance of payments or running down foreign exchange reserves. The vulnerability of an economy can be related to a number of factors through an accounting identity. Such a decomposition analysis allows a study of how vulnerability to increases in oil prices changes over time and how much changes in individual factors con-tribute to the overall changes in vulnerability. The results may highlight countries that are experiencing atypical changes in vulnerability and point to factors causing those changes. The findings could call for more detailed analysis of why a country might be departing markedly from the global trend of countries with compa-rable levels of economic development and resource endowments and what steps could reduce its vulnerability. Measuring vulnerability Data for constructing a simplified measure of vulnerability are available for a large number o