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Title: The Congestion Effect of Oil Transportation and Its Trade Implications

Citation Type: Working Paper

Publication Year: 2021

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DOI: 10.2139/ssrn.3851173

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Abstract: This paper studies how the micro behaviors of oil tankers and their interactions with exporters trigger shipping market congestion and pose significant implications for oil trade, prices, and final good production. By constructing a unique shipping dataset that tracks 757 oil tankers during 2017­2020, we document three novel facts: shipping market congestion, prevalence of market switching behavior by oil tankers, and propagation of oil trade shocks through a transportation network. By embodying the central mechanisms underlying the novel facts, we develop in a pioneering way a search and matching model that connects oil exports, transportation, and final good production, with a focus on the formation of shipping market congestion. Counterfactual exercises unveil that while congestion attenuates over one third of the volatility in oil trade and final good production that would otherwise have occurred in a congestion­free environment due to the impacts of oil trade shocks, this comes at the cost of exaggerated oil price fluctuations. Furthermore, compared to exogenous trade shocks, the corresponding endogenous adjustment of the oil transportation network only plays a minimal role in creating fluctuations of those macro aggregates, including oil prices.

Url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3851173

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Authors: Bai, Xiwen; Li, Yiliang

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Institution: SSRN

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Data Collections: IPUMS CPS

Topics: Other

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