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The Trade Consequences of Pricey Oil

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  • David von Below
  • Pierre-Louis Vezina

Abstract

This paper examines the trade and trade-induced welfare effects of high oil prices. Using a gravity model of trade we find that the distance elasticity of trade significantly increases with the oil price. This suggests that high oil prices make trade less global. We estimate that an increase in the oil price from 100$ to 200$ would have the similar effect as imposing a world-wide import tariff between 4% and 9%, depending on the distance between countries. In turn, such higher tade costs would lower welfare by 1.8% in the average non-oil-exporting country.

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File URL: http://www.oxcarre.ox.ac.uk/files/OxCarreRP2013115.pdf
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Bibliographic Info

Paper provided by Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 115.

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Date of creation: 2013
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Handle: RePEc:oxf:oxcrwp:115

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Keywords: oil prices; gravity; trade costs;

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  1. Jean-François BRUN & Céline CARRERE & Patrick GUILLAUMONT & Jaime MELO DE, 2002. "Has Distance Died? Evidence from a Panel Gravity Model," Working Papers 200215, CERDI.
  2. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
  3. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  4. Anca D. Cristea & David Hummels & Laura Puzzello & Misak G. Avetisyan, 2011. "Trade and the Greenhouse Gas Emissions from International Freight Transport," NBER Working Papers 17117, National Bureau of Economic Research, Inc.
  5. Keith Head & Thierry Mayer, 2013. "Gravity Equations: Workhorse, Toolkit, and Cookbook," Sciences Po publications 2013-02, Sciences Po.
  6. Joao Santos Silva & Silvana Tenreyro, 2005. "The Log of Gravity," CEP Discussion Papers dp0701, Centre for Economic Performance, LSE.
  7. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 131-154, Summer.
  8. Storeygard, Adam, 2013. "Farther on down the road : transport costs, trade and urban growth in Sub-Saharan Africa," Policy Research Working Paper Series 6444, The World Bank.
  9. Mirza, Daniel & Zitouna, Habib, 2010. "Oil Prices, Geography and Endogenous Regionalism: Too Much Ado About (Almost) Nothing," CEPREMAP Working Papers (Docweb) 1009, CEPREMAP.
  10. James Harrigan, 2005. "Airplanes and Comparative Advantage," NBER Working Papers 11688, National Bureau of Economic Research, Inc.
  11. Paul R. Bergin & Reuven Glick, 2006. "Global price dispersion: are prices converging or diverging?," Working Paper Series 2006-50, Federal Reserve Bank of San Francisco.
  12. Jonathan Eaton & Samuel Kortum, 2012. "Putting Ricardo to Work," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 65-90, Spring.
  13. Joern Kleinert & Julia Spies, 2011. "Endogenous Transport Costs in International Trade," IAW Discussion Papers 74, Institut für Angewandte Wirtschaftsforschung (IAW).
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