**China’s energy mix and rebalancing needs.** China is the second-largest oil importer in the world after the United States, but the share of oil in its overall energy consumption is the lowest among G20 economies. Instead, China relies heavily on coal, which accounted for 65 percent of energy consumption in 2016. Regulated fuel costs and a low energy and transportation weight in consumer baskets also mean that lower oil prices lead to limited real income gains for consumers (World Bank 2015c). Thus, the direct impact of the oil price plunge on China was relatively modest. Meanwhile, a near halving of investment growth since 2012 has weighed significantly on activity, and is estimated to have accounted for 40 to 50 percent of the import deceleration in 2014–15, with significant knock-on effects for trading partners (Kang and Liao 2016). Since much of investment is resource-intensive, the impact of slower investment growth was particularly significant for industrial commodity prices and activity in commodity-exporting EMDEs (World Bank 2016b; Huidrom, Kose, and Ohnsorge 2017).

**Lower sensitivity of other oil-importing EMDEs to oil shocks.** A number of recent empirical studies suggest that activity in oil-importing EMDEs is less responsive to oil supply shocks than that in major advanced economies (Aastveit, Bjørnland, and Thorsrud 2014; Caldara, Cavallo, and Iacoviello 2016). These studies explore several factors, including different energy mixes, consumption patterns, and energy price controls that limit the pass-through of world prices to domestic retail prices. Since many oil-importing EMDEs took advantage of lower world prices to reduce energy subsidies, real income gains from declining oil prices for consumers were more limited.

For non-oil commodity exporters, which represent approximately half of oil-importing EMDEs, adjustments to past terms-of-trade shocks continued to weigh heavily on activity in 2014–16.<sup>8</sup> Because investment has responded strongly to deteriorating terms of trade since 2011, both actual and potential output growth may have been negatively affected (World Bank 2017b). Some oilimporting EMDEs had also made significant investments in new oil production capacity and biofuels during the period of high oil prices, including in a number of low-income countries (World Bank 2015d). The reduced profitability of these projects as prices collapsed led to a sharp contraction in capital expenditures in those sectors. The fact that oil-importing EMDEs have become a major source of global growth and international spillovers could help explain the lack of a global stimulus effect from falling oil prices (Huidrom, Kose, and Ohnsorge 2017).

**The impact of low oil prices on investment in the United States.** In the United States, the boost to private consumption from lower oil prices was partly offset by a sharper-than-expected contraction in capital spending in the energy sector (Baumeister and Kilian 2016). Mining investment was cut in half in the two years that followed the mid-2014 oil price plunge. This dragged private investment down, curtailing GDP growth by 0.2 percentage point in both 2015 and 2016. The collapse of energy investment reflected both the magnitude of oil price changes and the specific nature of shale oil production, where capital expenditures are more price elastic than conventional production (Bjørnland, Nordvik, and Rohrer 2017; Newell and Prest 2017). U.S.

> 8 A country is classified as “non-oil commodity exporter” when, on average in 2012–14, either (i) total commodities exports accounted for 30 percent or more of total exports; or (ii) exports of any single commodity other than energy accounted for 20 percent or more of total exports. The classification of EMDEs into energy exporters, non-energy commodity exporters, and commodity importers is presented in Appendix 1.

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