ESSAYS ON INTERNATIONAL TRADE IN OIL

Open Access
- Author:
- Farrokhi, Farid
- Graduate Program:
- Economics
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- May 27, 2016
- Committee Members:
- Jonathan Eaton, Dissertation Advisor/Co-Advisor
Stephen R. Yeaple, Committee Chair/Co-Chair
Paul L. E. Grieco, Committee Member
James R. Tybout, Committee Member
Seth Blumsack, Outside Member - Keywords:
- international trade
oil industry
oil refinery
general equilibrium
structural estimation
maximum likelihood
natural resources - Abstract:
- Trade in natural resources occupies a small part of international trade literature. Oil alone, as the most traded natural resource, accounts for 12-15\% of world trade in recent years. The literature on international trade has included the oil industry only in multi-sector frameworks designed for manufacturing rather than natural resources. The fields of industrial organization and energy economics lack a general equilibrium framework to put the oil industry into global perspective. Both the specifics of this industry and a worldwide equilibrium analysis must come together to address trade-related questions on oil markets. I seek to further this objective. Specifically, (i) patterns of oil trade, particularly for crude oil at the level of refineries are not well-documented. (ii) Refineries' sourcing behavior and trade frictions they face are not well-understood or not yet estimated. (iii) A multi-country general equilibrium model of oil trade that incorporates the specifics of this industry has not been designed to assess counterfactual policies. I address these three voids in three chapters. In Chapter 1, I document key patterns that emerge from refinery- and country-level oil trade data. In addition, I conduct an accounting of global oil flows to deal with mismeasurements in the available oil trade data. This chapter cleans and merges multiple datasets on oil trade, production, and consumption, and make them ready to use for researchers. In Chapter 2, motivated by the key facts that emerge from refinery-level data, I structurally estimate refineries' choices of which suppliers to select and how much crude oil to buy from each. The model of refineries' global sourcing presented in this chapter is carefully specified using detailed institutional background on crude oil procurement. Further, I develop and implement a new procedure to estimate variable and fixed costs of sourcing at the level of individual buyers. This estimation procedure has substantial advantages in estimating buyers' selection decisions, and can be used in other settings. In Chapter 3, I embed my analysis in Chapter 2 into a general equilibrium model of crude and refined oil trade. The model fits well out of sample. Using the estimates to simulate the effects of counterfactual policies on oil trade and prices, I find: (i) A boom in crude oil production of a source changes the relative prices of crude oil across countries modestly which I interpret as the extent to which the behavior of crude oil markets deviates from an integrated global market. (ii) By lifting the ban on U.S. crude oil exports, annual revenues of U.S. crude oil producers increase by \$8.9 billion, annual profits of U.S. refineries decrease by \$7.1 billion, while American final consumers face a negligibly higher price of refined oil. (iii) Gains from oil trade are immensely larger than gains from trade in the existing models designed for manufacturing.