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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)

Suggested Citation

  • Benjamin Bridgman, 2008. "Energy Prices and the Expansion of World Trade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 904-916, October.
  • Handle: RePEc:red:issued:06-199
    DOI: 10.1016/j.red.2008.07.006
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    Cited by:

    1. Amador, João & Cabral, Sónia, 2014. "Global value chains: surveying drivers and measures," Working Paper Series 1739, European Central Bank.
    2. Rubini, Loris, 2009. "Innovation and the Elasticity of Trade Volumes to Tariff Reductions," MPRA Paper 21484, University Library of Munich, Germany.
    3. repec:pcz:alspcz:v:4:y:2010:i:1:p:186-192 is not listed on IDEAS
    4. Dalton, John, 2013. "A Theory of Just-in-Time and the Growth in Manufacturing Trade," MPRA Paper 48223, University Library of Munich, Germany.
    5. Zymek, Robert, 2015. "Factor proportions and the growth of world trade," Journal of International Economics, Elsevier, vol. 95(1), pages 42-53.
    6. Benjamin Bridgman, 2013. "Market entry and trade weighted import costs," Canadian Journal of Economics, Canadian Economics Association, vol. 46(3), pages 982-1013, August.
    7. 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.
    8. 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.
    9. Benjamin Brishman, 2010. "The Rise of Vertical Specialization Trade," BEA Working Papers 0051, Bureau of Economic Analysis.
    10. Shiu-Sheng Chen and Kai-Wei Hsu, 2013. "Oil Price Volatility and Bilateral Trade," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    11. Peter Egger & Sergey Nigai, 2015. "Energy Demand and Trade in General Equilibrium," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(2), pages 191-213, February.
    12. Alessandria, George & Choi, Horag, 2014. "Do falling iceberg costs explain recent U.S. export growth?," Journal of International Economics, Elsevier, vol. 94(2), pages 311-325.
    13. Mariko Klasing & Petros Milionis & Robert Zymek, 2015. "Gravity across Space and Time," Edinburgh School of Economics Discussion Paper Series 265, Edinburgh School of Economics, University of Edinburgh.
    14. Wei, Yanfeng, 2019. "Oil price shocks, economic policy uncertainty and China’s trade: A quantitative structural analysis," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 20-31.
    15. Benjamin Bridgman, 2013. "International Supply Chains And The Volatility Of Trade," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2110-2124, October.
    16. Rubini, Loris, 2014. "Innovation and the trade elasticity," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 32-46.
    17. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, vol. 86(1), pages 133-140.
    18. Hakan Yilmazkuday, 2011. "Oil Shocks through International Transport Costs: Evidence from U.S. Business Cycles," Working Papers 1105, Florida International University, Department of Economics.
    19. Takeshi Yagihashi & David D. Selover, 2017. "How Do the Trans-Pacific Economies Affect the USA? An Industrial Sector Approach," The World Economy, Wiley Blackwell, vol. 40(10), pages 2097-2124, October.
    20. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers w201403, Banco de Portugal, Economics and Research Department.
    21. George Alessandria, 2009. "Do Falling Iceberg Costs Account for US Export Growth?," 2009 Meeting Papers 510, Society for Economic Dynamics.

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    More about this item

    Keywords

    Trade growth; Transport costs; Oil shocks;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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