The price of oil rose to unprecedented highs in the 2000s, and its recent plunge took many by surprise. Although there are many consequences of such price fluctuations on the world economy, they are notoriously difficult to pin down. This column examines the trade consequences of varying shipping costs caused by oil price fluctuations. High oil prices are found to increase the distance elasticity of trade, making trade less global. The recent drop in oil prices could thus be a boon for globalisation.
Pierre-Louis Vézina, David von Below, 20 January 2016
James Anderson, Ingo Borchert, Aaditya Mattoo, Yoto Yotov, 21 October 2015
Policy barriers to services trade comprise relatively opaque and hard-to-measure regulations. This column provides novel estimates that reveal that services trade barriers are large but have generally fallen over time, with pronounced differences across sectors and countries. Trade barriers have declined less for small economies and for sectors where initial borders were high.
Pablo Fajgelbaum, Stephen Redding, 12 July 2014
External integration is often viewed as an important driver of economic development, but most existing studies use aggregate data. This column present evidence from a natural experiment provided by Argentina’s integration into the world markets in the late 19th century. The findings suggest that proximity to trade centres is associated with employment density, high lands rates relative to wages, and structural transformation away from agriculture.
Henrik Braconier, Mauro Pisu, 20 February 2014
Despite substantial integration, national borders still provide a large obstacle to trade in Europe. This column shows that much of these ‘iceberg costs’ can be attributed to underdeveloped infrastructure, namely roads. Improving international roadways to the level of national ones could substantially raise gains to trade.
Jean-François Arvis, Yann Duval, Ben Shepherd, Chorthip Utoktham, 17 March 2013
The world ain’t flat. Distance has massive effects on all manner of international flows, but measuring its empirical impact has been hindered by poor measurement of bilateral trade costs. This column introduces a new global dataset of bilateral trade costs prepared by UNESCAP and the World Bank. The data stress the importance of supply chains and connectivity constraints in explaining the higher costs and lower levels of trade integration observed in developing countries.
Dennis Novy, 11 October 2012
Trade barriers such as transportation costs and tariffs reduce international trade. But when these trade barriers come down, do they increase international trade equally among countries? This column presents evidence from OECD countries that trade costs have a differential impact depending on the trade intensity of the countries involved. When they already trade a lot, country pairs hardly benefit. But bilateral trade grows faster when the initial trade relationship was thin.
Gábor Békés, Balázs Muraközy, 20 September 2012
Trade relationships often last for a surprisingly short period of time. Previously this was explained by failed export efforts. Instead, this column shows that it may be optimal for firms to export a certain product to a country only every once in a while. This requires less investment at the beginning and this strategy is often used by firms which are less productive or face credit constraints; this is especially true for farther and smaller markets.
Marcelo Olarreaga, Andreas Lendle, Simon Schropp, Pierre-Louis Vézina, 19 August 2012
This paper compares the impact of distance, a standard proxy for trade costs, on eBay and offline international trade flows, finding that the effect of distance to be on average 65% smaller on the eBay online platform than offline, and that online markets can help overcome government and offline market failures.
James Feyrer, 23 December 2009
The effects of distance on trade and of trade on income have puzzled economists for centuries. This column presents new evidence from a natural experiment – the 1967-1975 closure of the Suez Canal. Results suggest that a 10% decrease in ocean distance results in a 5% increase in trade. Also, it estimates that every dollar of increased trade raises income by about 25 cents.
Douglas Campbell, Christopher Meissner, Dennis Novy, David Jacks, 19 September 2009
Trade has declined massively during the crisis. This column assesses the relative roles of falling demand and rising trade costs in explaining the collapse and compares it to the Great Depression. Surprising, the increase in trade costs today is as large as in 1929, despite the absence of any modern protectionism resembling Smoot-Hawley. It appears that reviving global demand alone will be insufficient to revive world trade.
David Jacks, 12 September 2009
The sensitivity of bilateral trade flows to distance has remained unchanged or increased over the last half century, even in the face of unprecedented levels of global trade. This column shows that the effect of distance dramatically declined during the nineteenth century as trade costs fells, suggesting that trade costs may have not declined nearly as dramatically in recent decades as has been assumed.
Wolfgang Keller, Stephen Yeaple, 17 March 2009
What jobs are headed overseas? This column emphasises that the feasibility of offshoring tasks is heavily influenced by the costs of transferring technology and managing complex tasks. Offshoring may be less about lower factor costs and more about the race between technology transfers and trade costs.