The effects of diesel price on regional trade in the USA

The abundant trade literature offers little insight on how diesel prices affect intranational trade. We fill this gap by calibrating a structural gravity model to recent U.S. interstate trade data. We discover that, for any distance, the elasticity of trade to diesel prices is much greater for low-valued commodities than for high-valued commodities. The general equilibrium result shows that a nationwide diesel price increase leads to heterogeneous decreases in trade across distances from the exporting state because of adjustments in multilateral costs and trade portfolio. Moreover, it increases the share of high-valued commodities in interstate trade.