The Effects of Oil Price on Regional Trade in the United States

Abstract

This paper studies the effect of the diesel price on trade flows across space within the United States. Using a structural gravity model with spatially autocorrelated flows applied to the inter-state trade, we find that an increase in diesel price reduces the volume of trade and that this effect increases with the distance between trade partners. Furthermore, such price shock increases trade within a state and with nearby partners. Finally, the social welfare effects of a 10% increase in diesel price vary by states, with the median corresponding to a 0.69% loss in the real GDP or $82 billion nationwide.