Essays on the Effects of Trade Liberalization and Oil Price Volatility in Open Economies

Abstract

ECONOMICS

ESSAYS ON THE EFFECTS OF TRADE LIBERALIZATION AND OIL PRICE VOLATILITY IN OPEN ECONOMIES

OSAYI ETHEL OVBIOSA-AKINBOSOYE

Dissertation under the direction of Professor Eric W. Bond

This work comprises three chapters. In the first two chapters, I study the effect of reductions in trade cost on the sustainability of collusion in a duopoly market in which firms compete in prices and find that the relationship between trade costs and the minimum discount factor for which the collusive outcome is sustainable depends, to a great extent, on the degree of product substitutability and the initial level of trade costs--in some ranges of trade costs, the minimum discount factor is decreasing whereas in some other ranges, it is increasing. For the limiting case of homogenous products, I find that reductions in trade costs make the collusive outcome more sustainable.

In the third chapter, the effects of oil price volatility on private consumption and the terms of trade of Nigeria are studied by considering a small open economy rational expectations model. Modified versions of the R.G. King (1987) MATLAB programs in which parameters of the original programs are calibrated to the data for Nigeria are employed in the computation of population moments and impulse responses. It is found that variability in the terms of trade can be mostly explained by variability in world oil prices. With regards to private consumption, the terms of trade is found to cause a jump to a new higher steady state level, whereas the real interest rate is found to cause an increase over time.