How crude oil prices shape the global division of labour

TL;DR

This paper investigates how fluctuations in crude oil prices influence the structure of global value chains and international trade patterns from 1960 to 2011, revealing a strong link independent of trade balances or agreements.

Contribution

It introduces a novel analysis connecting oil prices to GVC configurations using Markov Chain and network analysis over a long historical period.

Findings

Oil prices are tightly linked to global trade patterns.

Transport plays a key structural role in shaping GVCs.

The correlation is independent of trade balances or agreements.

Abstract

Our work sheds new light on the role of oil prices in shaping the world economy by investigating flows of goods and services through global value chains between 1960 and 2011, by means of Markov Chain and network analysis. We show that over that time period the international division of labor and trade patterns are tightly linked to the price of oil. We demonstrate that this correlation does not depend on the balance of payments nor on the nominal value of trade or trade agreements; it is instead linked to the way the Global Value Chains (GVCs) shape global trade. Our study suggests that transport played an important structural role in shaping GVCs.