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The Trade Consequences of Pricey Oil

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  • David von Below
  • Pierre-Louis Vézina

Abstract

This paper examines the trade and trade-induced welfare effects of oil prices. Using a gravity model of trade, the paper finds that the distance elasticity of trade significantly increases with the oil price. This suggests that high oil prices make trade less global, as they affect longer shipping routes more. The paper estimates that an increase in the oil price from $100 to $200 (in 2014 US$) would have similar trade effects as an import tariff around 17 percent for two countries 10,000 km away. This is akin to a 55 percent increase in shipping distance. This trade reduction would lower welfare by 0.03 percent in the average non-oil-exporting country.

Suggested Citation

  • 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.
    • Handle: RePEc:pal:imfecr:v:64:y:2016:i:2:p:303-318
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    References listed on IDEAS

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    1. Cristea, Anca & Hummels, David & Puzzello, Laura & Avetisyan, Misak, 2013. "Trade and the greenhouse gas emissions from international freight transport," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 153-173.
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    Cited by:

    1. Giulia Brancaccio & Myrto Kalouptsidi & Theodore Papageorgiou, 2023. "The impact of oil prices on world trade," Review of International Economics, Wiley Blackwell, vol. 31(2), pages 444-463, May.
    2. Federico S. Mandelman & Yang Yu & Francesco Zanetti & Andrei Zlate, 2024. "Slowdown in Immigration, Labor Shortages, and Declining Skill Premia," FRB Atlanta Working Paper 2024-1, Federal Reserve Bank of Atlanta.
    3. Ashutosh Kar & Pratyay Ranjan Datta, 2020. "Logistics Cost Dynamics in International Business: A Causal Approach," Foreign Trade Review, , vol. 55(4), pages 478-495, November.
    4. Lashkaripour, Ahmad, 2020. "Weight-based quality specialization," Journal of International Economics, Elsevier, vol. 127(C).
    5. Ayaz Zeynalov, 2017. "The gravity of institutions in a resource-rich country: the case of Azerbaijan," International Economics and Economic Policy, Springer, vol. 14(2), pages 239-261, April.

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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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