IMF Economic Review

, Volume 64, Issue 2, pp 303–318 | Cite as

The Trade Consequences of Pricey Oil

  • David von Below
  • Pierre-Louis Vézina
Article

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.

JEL Classifications

F14 Q43 

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Copyright information

© International Monetary Fund 2016

Authors and Affiliations

  • David von Below
  • Pierre-Louis Vézina

There are no affiliations available

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