Abstract
This work uses a gravity model to estimate the determinants of U.S. crude oil imports, introducing two variables tied to the political nature of trade: U.S. arm sales and the level of political freedom in a country. Model results indicate that contiguity is important for U.S. crude oil imports, but trade agreements are not. Being an OPEC member leads to more exports of crude oil to the U.S. These factors combined with the negative relationship with freedom and U.S. crude oil imports, suggests that the U.S. imports a lot of oil from countries that have little cultural and political similarities. Keywords: oil, gravity, structural break, U.S., politicsJEL Classifications: Q4, F1DOI: https://doi.org/10.32479/ijeep.11238
Highlights
The United States has historically been the world’s largest importer of crude oil, importing, on average, 21% of the global value of crude oil imports from 2002 to 2015 (UN Comtrade, 2018)
At each point in time t, the volume of U.S crude oil imports from its trading partners i Oilus,t,2 depends on U.S gross domestic product (GDP) (GDPus,t), the GDP of its trading partners (GDPit), the average physical distance between the U.S and the trading partner (Disus-i,t), and a number of trade limiting or/and enabling factors, πus−i,t, such as sharing a border, having a bilateral free trade agreement (FTA), having a similar official language, stable exchange rate regimes, the level of trade openness, membership in similar international trade institutions such as World Trade Organization (WTO) and/or Organization of Petroleum Exporting Countries (OPEC), and the political economy factors and U.S arm sales (U.S arm sales)
We begin our discussion of results with the test of a structural break, since Figure 1 indicates that U.S crude oil imports seemed to face two regimes: increasing imports until the mid-2000s, decreasing imports since
Summary
The United States has historically been the world’s largest importer of crude oil, importing, on average, 21% of the global value of crude oil imports from 2002 to 2015 (UN Comtrade, 2018). Crude oil is noted as being the commodity traded the most, its trade is often contentious due to issues such as national security and political factors (Krane and Medlock, 2018; Zhang et al, 2015). The other main suppliers to the United States are either relatively close (for example almost all South American countries export to the U.S.) or they are the recipient of a free trade agreement with the U.S (e.g., Australia). Given the importance of crude oil in the economy, the literature has focused on explaining different aspects of the commodity. Background information on U.S crude oil imports is provided
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