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Energy Prices and the Expansion of World Trade

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  • Benjamin Bridgman

    (Bureau of Economic Analysis)

Abstract

The share of merchandise output that is internationally traded has significantly increased while tariffs have fallen. However, standard trade models have surprising difficulty linking these two facts. Trade growth slowed in the 1970s as tariffs fell relatively sharply while after the late 1980s trade grew quickly as tariffs fell slowly. This pattern implies that the price-import elasticity has changed over time. Also, tariffs have not fallen enough to generate such a large increase in trade given estimates of this elasticity. Changes in transport costs can resolve both puzzles. I present a vertical specialization trade model with an energy-using transportation sector. In the simulated model, trade growth slows from 1974 to 1985. The oil shocks raised transport costs, offsetting falling tariffs, so the price-import elasticity no longer needs to change. It also generates the observed volume of trade growth since transport costs have fallen over the long run. (Copyright: Elsevier)

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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 11 (2008)
Issue (Month): 4 (October)
Pages: 904-916

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Handle: RePEc:red:issued:06-199

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Keywords: Trade growth; Transport costs; Oil shocks;

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References

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Citations

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Cited by:
  1. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, vol. 86(1), pages 133-140.
  2. Chen, Shiu-Sheng & Hsu, Kai-Wei, 2012. "Reverse globalization: Does high oil price volatility discourage international trade?," Energy Economics, Elsevier, vol. 34(5), pages 1634-1643.
  3. Hakan Yilmazkuday, 2011. "Oil shocks through international transport costs: evidence from U.S. business cycles," Globalization and Monetary Policy Institute Working Paper 82, Federal Reserve Bank of Dallas.
  4. repec:pcz:alspcz:v:4:y:2010:i:1:p:186-192 is not listed on IDEAS
  5. George Alessandria & Horag Choi, 2012. "Do falling iceberg costs explain recent U.S. export growth?," Working Papers 12-20, Federal Reserve Bank of Philadelphia.
  6. Benjamin Bridgman, 2010. "Market Entry and Trade Weighted Import Costs," BEA Working Papers 0067, Bureau of Economic Analysis.
  7. Robert C. Johnson & Guillermo Noguera, 2012. "Fragmentation and Trade in Value Added over Four Decades," NBER Working Papers 18186, National Bureau of Economic Research, Inc.
  8. George Alessandria, 2009. "Do Falling Iceberg Costs Account for US Export Growth?," 2009 Meeting Papers 510, Society for Economic Dynamics.
  9. Benjamin Bridgman, 2010. "International Supply Chains and the Volatility of Trade," BEA Working Papers 0059, Bureau of Economic Analysis.
  10. Rubini, Loris, 2009. "Innovation and the Elasticity of Trade Volumes to Tariff Reductions," MPRA Paper 21484, University Library of Munich, Germany.
  11. Dalton, John, 2013. "A Theory of Just-in-Time and the Growth in Manufacturing Trade," MPRA Paper 48223, University Library of Munich, Germany.
  12. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers w201403, Banco de Portugal, Economics and Research Department.
  13. Benjamin Brishman, 2010. "The Rise of Vertical Specialization Trade," BEA Working Papers 0051, Bureau of Economic Analysis.

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