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When Prices Go Awry: the Effects of an Oil Price Bust in a Subnational Oil-Producing Economy

Author

Listed:
  • Gerardo Juárez

    (Banco de México)

  • Emmanuel Chávez

    (Division of Economics, CIDE)

  • Irvin Rojas

    (Division of Economics, CIDE)

Abstract

We investigate the effects of the 2014 international oil price bust on economic activity and fiscal outcomes in local oil-producing economies in Mexico. Using synthetic control estimators, we find that the 2014 price bust leads to a substantial decline in economic activity. We estimate an average gap in economic activity of 19.5% in the post-shock period between the realized outcome and the counterfactual scenario with no price shock. The largest estimated effect occurs in the southeastern state of Tabasco (21.6% decrease in economic activity). A collapse in local labor markets and government revenues follows. Fiscal transfers from the federal government do not act as a buffer, leaving local oil-producing states highly vulnerable to price fluctuations.

Suggested Citation

  • Gerardo Juárez & Emmanuel Chávez & Irvin Rojas, 2024. "When Prices Go Awry: the Effects of an Oil Price Bust in a Subnational Oil-Producing Economy," Working Papers DTE 635, CIDE, División de Economía.
    • Handle: RePEc:emc:wpaper:dte635
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    File URL: http://www.economiamexicana.cide.edu/RePEc/emc/pdf/DTE/DTE635.pdf
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    More about this item

    Keywords

    Oil price shock; subnational economies; fiscal policy; synthetic control;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources

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