Oil Shock Impacts on the Borderplex Regional Economy

ABSTRACT: This study analyzes the effect of oil price shocks on the economies of El Paso, Texas and Ciudad Juarez, Chihuahua, jointly referred to as the “Borderplex”. It employs a measure of the net oil price increase developed by Hamilton (1996) in a manner similar to that applied by Sill (2007) to the United States national economy. Impulse response functions are calculated to determine the impact of 10-percent oil price shocks on the Borderplex regional economy. The asymmetrical relationship between oil prices and economic performance is also examined using a net oil price decrease variable. Results found in this study are inconclusive. Negative and statistically significant relationships for the net oil price increase are obtained in the El Paso real personal income, El Paso non-agricultural employment, Ciudad Juarez retail sales, and Ciudad Juarez formal sector employment equations. Inconsistent results are reported for the El Paso retail sales equation, while there appears to be no relationship between net oil price increases and El Paso gross metropolitan product or between net oil price increases and El Paso median existing single family house prices. The results presented in this study do not find definitive evidence in support of an asymmetrical relationship between oil prices and metropolitan economic performance