The Impact of Oil Prices on World Trade

Giulia Brancaccio (), Myrto Kalouptsidi () and Theodore Papageorgiou
Additional contact information
Giulia Brancaccio: Cornell University
Myrto Kalouptsidi: Harvard University

No 1030, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: In this paper we investigate the importance of fuel costs in shaping world trade. We use AIS data on ship locations and transaction-level shipping prices, along with a dynamic model describing the world shipping industry, to measure the elasticity of trade with respect to ship fuel costs. We find that the average estimated elasticity is 0.35, but ranges from 0.1 to about 1.2 depending on the level of the fuel cost. The pass-through of fuel costs to transport costs is low, at 0.17. Strikingly, the trade elasticity features a pronounced asymmetry in low vs. high oil prices. As fuel costs decline, the elasticity plateaus and further declines have little impact on trade. This “flattening out” of the elasticity is attributed to the equilibrium of the transportation sector and in particular the changes in the relative bargaining positions of ships and exporters. Finally, we use the estimated elasticity to assess the importance of ship design on trade flows: if the large fuel efficiency gains achieved in the 1980s had not been realized, trade would be 12% lower today.

Keywords: fuel costs; shipping; world trade; trade elasticity; oil prices; fuel efficiency; fuel cost pass-through (search for similar items in EconPapers)
JEL-codes: F1 F64 L90 R4 (search for similar items in EconPapers)
Date: 2021-04-24
New Economics Papers: this item is included in nep-cwa, nep-ene and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://fmwww.bc.edu/EC-P/wp1030.pdf main text (application/pdf)

Related works:
Journal Article: The impact of oil prices on world trade (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:1030

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum ().