Since 2008, extraction of shale oil in the U.S. has grown significantly from around 0.45 million barrels per day (bpd) to 4.9 million bpd in 2015. U.S. Energy Information Administration (EIA) forecasted that shale oil production reaches 11 million bpd by 2035.

This paper investigates the effects of the shale oil revolution on U.S. industrial production and trade patterns. In a two-period model, it is shown that under plausible stationary conditions, even extraction of shale oil is optimal. In the Heckscher-Ohlin world, an increase in a resource endowment necessarily leads to an expansion of one industry but a contraction in the other industry. In contrast, this model shows that an increase in shale oil extraction leads to an expansion of all four industries, including the energy sector. An increase in shale oil extraction in the first period, in turn, increases the relative wage and rent without affecting the wage-rent ratio, benefiting both resource owners. Moreover, an increase in shale oil extraction in the first period decreases the output of the exportable, while increasing that of the importable sector and energy export.