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

Gerardo Juárez (), Emmanuel Chavez and Irvin Rojas
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Gerardo Juárez: Banco de México

No DTE 635, Working Papers from CIDE, División de Economía

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.

Keywords: Oil price shock; subnational economies; fiscal policy; synthetic control (search for similar items in EconPapers)
JEL-codes: E62 H71 H72 Q35 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2024-08
New Economics Papers: this item is included in nep-ene, nep-lab and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:emc:wpaper:dte635

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