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Energy Prices and the Expansion of World Trade

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  • Benjamin Bridgman

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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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Paper provided by Department of Economics, Louisiana State University in its series Departmental Working Papers with number 2003-14.

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Handle: RePEc:lsu:lsuwpp:2003-14

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

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