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The Trade Consequences of Pricey Oil

  • Pierre-Louis Vezina
  • David von Below

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 signif- icantly 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 trade costs would lower welfare by 1.8% in the average non-oil-exporting country.

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File URL: http://www.economics.ox.ac.uk/materials/papers/13126/Paper115.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number OxCarre Research Paper 115.

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Date of creation: 17 Jun 2013
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Handle: RePEc:oxf:wpaper:oxcarre-research-paper-115
Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
Web page: http://www.economics.ox.ac.uk/
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  1. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
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  6. Daniel Mirza & Habib Zitouna, 2009. "Oil Prices, Geography and Endogenous Regionalism: Too Much Ado About (Almost) Nothing," Working Papers 2009-26, CEPII research center.
  7. Jean-François Brun & Céline Carrère & Patrick Guillaumont & Jaime de Melo, 2005. "Has Distance Died? Evidence from a Panel Gravity Model," World Bank Economic Review, World Bank Group, vol. 19(1), pages 99-120.
  8. Harrigan, James, 2010. "Airplanes and comparative advantage," Journal of International Economics, Elsevier, vol. 82(2), pages 181-194, November.
  9. Jonathan Eaton & Samuel Kortum, 2012. "Putting Ricardo to Work," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 65-90, Spring.
  10. Joern Kleinert & Julia Spies, 2011. "Endogenous Transport Costs in International Trade," IAW Discussion Papers 74, Institut für Angewandte Wirtschaftsforschung (IAW).
  11. Joao Santos Silva & Silvana Tenreyro, 2005. "The log of gravity," LSE Research Online Documents on Economics 3744, London School of Economics and Political Science, LSE Library.
  12. 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.
  13. Bergin, Paul R. & Glick, Reuven, 2007. "Global price dispersion: Are prices converging or diverging?," Journal of International Money and Finance, Elsevier, vol. 26(5), pages 703-729, September.
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