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Title:Oil prices and regional trade in the United States
Author(s):Szewerniak, Wojciech W
Advisor(s):Xu, Yilan
Department / Program:Agr & Consumer Economics
Discipline:Agricultural & Applied Econ
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):oil prices
Abstract:This paper explores the effect of a diesel price on trade flows across space within the U.S. Using a structural gravity model applied to the U.S. inter-state trade, we find diesel price has a significant negative effect on interstate trade, and that trade between any pair of states is more sensitive to an oil price shock the farther away the states are from one another. Exemplifying this in a general equilibrium, a 10% increase in diesel price decreases trade from Massachusetts to California by 2.9%, but only by 0.47% to New York, accounting for a 2.43 percentage point difference. At the same time Massachusetts increases trade within its own borders by 0.53%. In general, we can see that trade becomes more local (or regional) when fuel costs rise. Finally, such a modest increase of diesel price leads to non-uniform state welfare effects, with a median 0.69% real GDP loss, amounting to a total income loss of $82 billion nationwide.
Issue Date:2016-07-19
Rights Information:Copyright 2016 Wojciech Szewerniak
Date Available in IDEALS:2016-11-10
Date Deposited:2016-08

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