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Oil Prices, Geography and Endogenous Regionalism: Too Much Ado About (Almost) Nothing

Author

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  • Mirza, Daniel
  • Zitouna, Habib

Abstract

This paper studies the effect of oil prices on the geography of international trade. We model transport costs as a function of variable and fixed costs. By affecting the first cost component,oil prices can then modify the structure of transportation costs across partners. This, we argue, acts as a factor of distortion in relative prices, thereby creating a reallocation of trade at the expense of remote countries. In that respect, an increase in oil prices should favor regionalism. This mechanism is empirically tested using data on US bilateral imports and transportation costs. The empirical results are consistent with the theoretical intuition. But, the elasticity of freight rates to oil prices, directly linked to geographical distance, appears to be low: between 0.088 for close to US countries and 0.103 for faraway ones. We then estimate the contribution of the dramatic increase in oil prices, in recent years, to relative changes in the countries' probability to export to the US (extensive margins) along with their relative market shares (intensive margins). We find that the recent oil price increases that took place after 1999 have had only a maigre contribution: the last oil shock had contributed marginally to increase Canada and Mexico's relative performance.

Suggested Citation

  • Mirza, Daniel & Zitouna, Habib, 2010. "Oil Prices, Geography and Endogenous Regionalism: Too Much Ado About (Almost) Nothing," CEPREMAP Working Papers (Docweb) 1009, CEPREMAP.
  • Handle: RePEc:cpm:docweb:1009
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    File URL: http://www.cepremap.fr/depot/docweb/docweb1009.pdf
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    References listed on IDEAS

    as
    1. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
    2. Hélène Erkel-Rousse & Daniel Mirza, 2002. "Import price elasticities: reconsidering the evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 35(2), pages 282-306, May.
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    Cited by:

    1. Mehdi Ben Slimane & Marilyne Huchet-Bourdon & Habib Zitouna, 2016. "Do FDI inflows and energy price affect the food import dependency in developing countries? Evidence from panel VAR Models," Working Papers SMART - LERECO 16-04, INRA UMR SMART-LERECO.
    2. David von Below & Pierre-Louis Vézina, 2016. "The Trade Consequences of Pricey Oil," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(2), pages 303-318, June.

    More about this item

    Keywords

    Regionalism; Oil Prices; Geography; Transport;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F19 - International Economics - - Trade - - - Other
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General

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