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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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Cited by:
  1. Dalton, John, 2013. "A Theory of Just-in-Time and the Growth in Manufacturing Trade," MPRA Paper 48223, University Library of Munich, Germany.
  2. Chen, Shiu-Sheng & Hsu, Kai-Wei, 2012. "Reverse Globalization: Does High Oil Price Volatility Discourage International Trade?," MPRA Paper 36182, University Library of Munich, Germany.
  3. Loris Rubini, 2010. "Innovation and the Elasticity of Trade Volumes to Tariff Reductions," 2010 Meeting Papers, Society for Economic Dynamics 570, Society for Economic Dynamics.
  4. Benjamin Bridgman, 2013. "International Supply Chains And The Volatility Of Trade," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 51(4), pages 2110-2124, October.
  5. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers, Banco de Portugal, Economics and Research Department w201403, Banco de Portugal, Economics and Research Department.
  6. George Alessandria, 2009. "Do Falling Iceberg Costs Account for US Export Growth?," 2009 Meeting Papers, Society for Economic Dynamics 510, Society for Economic Dynamics.
  7. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, Elsevier, vol. 86(1), pages 133-140.
  8. Hakan Yilmazkuday, 2011. "Oil shocks through international transport costs: evidence from U.S. business cycles," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 82, Federal Reserve Bank of Dallas.
  9. 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.
  10. George Alessandria & Horag Choi, 2012. "Do falling iceberg costs explain recent U.S. export growth?," Working Papers 12-20, Federal Reserve Bank of Philadelphia.
  11. Benjamin Brishman, 2010. "The Rise of Vertical Specialization Trade," BEA Working Papers, Bureau of Economic Analysis 0051, Bureau of Economic Analysis.
  12. Benjamin Bridgman, 2013. "Market entry and trade weighted import costs," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 46(3), pages 982-1013, August.
  13. repec:pcz:alspcz:v:4:y:2010:i:1:p:186-192 is not listed on IDEAS

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