Is Our World Going to Get a Whole Lot Smaller?

Abstract

The surge of oil prices in recent years has led to speculation that rising transportation costs could end the period of dramatic world trade growth -in the words of Rubin (2009), "…Your world is going to get a whole lot smaller." Using data from China's Customs Statistics, we examine the impact of oil prices on trade's sensitivity to distance. We find that higher oil prices increase trade's elasticity to distance, but that the economic effect is small. We also find that the effect is more pronounced for trade within global production networks, and less large for goods shipped by air.JEL Classification: F14, F15, F23