Oil and Petroleum Product Armington Elasticities: A New-Geography-Of-Trade Approach to Estimation

15 Pages Posted: 16 Apr 2009

See all articles by Edward J. Balistreri

Edward J. Balistreri

Iowa State University

Ayed Al-Qahtani

affiliation not provided to SSRN

Carol Dahl

affiliation not provided to SSRN

Date Written: April 14, 2009

Abstract

Exploiting the structural developments suggested by the geography-of-trade literature, we estimate the elasticity of substitution across regional varieties for six crude grades and seven refined products using fixed-effects gravity regressions. We use unique data, compiled by Al-Qahtani (2008), that include global coverage of bilateral trade and transport costs for the crude grades and refined products. We find that the point estimates of elasticities of substitution across import varieties exceed those commonly reported in the literature and those adopted in simulation analysis. Our estimates indicate that there may be far less hysteresis in the pattern of petroleum trade than previously forecast. This is important because the effectiveness of global climate and energy policies currently under debate may be significantly undermined by sizeable reactions in the trade equilibrium.

Keywords: Armington elasticities, Oil trade, Gravity model

JEL Classification: F1

Suggested Citation

Balistreri, Edward J. and Al-Qahtani, Ayed and Dahl, Carol, Oil and Petroleum Product Armington Elasticities: A New-Geography-Of-Trade Approach to Estimation (April 14, 2009). Available at SSRN: https://ssrn.com/abstract=1381923 or http://dx.doi.org/10.2139/ssrn.1381923

Edward J. Balistreri (Contact Author)

Iowa State University ( email )

260 Heady Hall
Ames, IA 50011
United States
3032531674 (Phone)

Ayed Al-Qahtani

affiliation not provided to SSRN ( email )

Carol Dahl

affiliation not provided to SSRN ( email )

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