In the year, 2008, the world experienced quite a stir in the oil price sector, which spiked to all time highs of about 147 dollars per barrel. The volatility of the price opened debates about what people consider as the number one source of energy and its reliability as such in the future. People generally joke in the third world that if the first world suffers from a cold, the effect will be exponentially worse in the third world and it will receive bouts of an equivalent to Ebola. The reliability of oil price as a variable in the economic analysis of predicting fluctuations in the GDP remains controversial nonetheless.
However, many scholars have tried to build models relating oil price, as well as GDP growth. This includes relating variables such as the stock market price and rate of unemployment and GDP growth and the oil price (Gonzalez and Nabiyev, 2009). These studies although seem to prejudice on certain economies and leave others out. Some countries are not as sensitive to oil price variations as others such as Sweden compared to the United States and some third-world countries. The former does not rely on oil so much as the latter countries.
Foreign capital also has played a large role in the structuring and progress of developing countries but it still a controversial issue. It has been controversial as regards to the way foreign establishments (Multinationals) operate in these countries as well as conditions for grants and aid. Capital inflows from foreign sources can be categorized into three, which are foreign aid, foreign private investment, as well as other foreign inflows. All of these inflows have a positive impact on the growth of a country. On a study, done from the 50s to the 70s where many variables including net flow of savings and gross domestic savings showed interesting results on low-income countries. The dependant variable happened to be the annual growth in GDP.
The findings showed a favorable of foreign aid and domestic savings on the economic growth but a different effect when including the stock of the direct investment, which retarded growth (Waheed 2004, pp.5). Many researchers, however, have looked into exogenous as the proponent of fluctuations in the real GDP growth rate of a country. Though their research has led to the uncovering of many variables responsible, there are still a lot of questions left unanswered. Some models suggest that the real GDP per capita has a constant growth increment. The changes in the population component explain this tendency of fluctuation.
In developed countries, however, the real GDP per capita has to grow for some time along a straight line unless provided there is negligible change in the specific age population (Kitov 2008, pp. 1). However, attention also has to go to the commodities within specific countries. When evaluating the African continent or South America, one has to pay attention to specific situations. There are commodities that have become so much of an integrated part of the economy in some cases, that situations that affect them, therefore, affect the economy. Most analysis is ineffective because they might fail to recognize the importance of the country and commodity differences (Nziramasanga and Obidegwu, 2002).
For example, a country like Zambia, in which export earnings loom as quite a large portion of the economy would have similar behavior experienced if there are fluctuations in export. Other researchers beg to differ stating that differences in GDP in developing and the developed countries in the knowledge and production relates to their systems. Apparently countries that have wasteful taxation systems or weak property legislation will tend to have a slower and unstable growth because unequal distribution of personal incomes (Kitov 2009, pp.222).
Year Developed Countries Developing Countries
1986 100.00 100.00
1987 103.36 107.50
1988 108.17 112.45
1989 112.36 116.70
1990 115.58 124.73
1991 116.86 127.59
1992 118.93 130.56
1993 120.05 135.05
1994 123.47 140.29
1995 126.36 146.36
1996 129.81 153.70
1997 133.78 161.03
1998 137.13 162.67
1999 140.96 166.81
2000 145.83 176.08
2001 146.84 180.56
Source: World Bank, 2003
The above data show the trends in the developed countries versus the developing ones when currency is converted into index since the 80s (World Bank, 2003).
They show a fall in value of the developing countries’ currencies over the years. Thus, the situation has gotten worse instead of better on the overall. When considering the real GDP per capita one has to reflect on the importance of the correction to be applied per capita of the total and the population of age 15 and above. In some countries, issues like unemployment from underlying stress in the economy would affect this analysis while some countries also have high population age limits for employment also affecting their analysis, especially in developed countries.
This method, however, explains only one perspective of the economic situation in developing countries that are using the currency trends related that of a stable one. A better alternative would be to analysis the statistical correlations within developed countries (Miskiewicz and Ausloos 2005, pp. 1). The objective would be to attain the similarities within the development patterns of these countries and come up with a basic aggregate of characteristics. These should then be measured against that of developing countries using the same type of index with an algorithm to substitute certain complicated attributes. Alternatively, it is appropriate to use graphical means for characteristics that are simple enough to be followed through in that manner.