The impact of oil price shocks on the El Paso-Ciudad Juarez borderplex

This paper analyzes the effect of oil prices shocks on the economies of El Paso, Texas and Ciudad Juarez, Chihuahua. 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 national economy. Impulse response functions are calculated to determine the impact of a 10-percent oil price shock on the 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. A negative and statistically significant relationship with the net oil price increase is found 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 found in the El Paso retail sales equation, while there appears to be no relationship between the net oil price increase and the El Paso gross metropolitan product and El Paso median existing single family house prices equations. The results presented in this study do not find definite evidence in support of the asymmetrical relationship between oil prices and the economy.