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Energy price, regulatory price distortion and economic growth: A case study of China

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  • Shi, Xunpeng
  • Sun, Sizhong

Abstract

Energy prices are often distorted by government control, which is justified on the grounds that such control will help mitigate the negative impact of price volatility from oil imports, and thus positively affect the domestic economy. In this paper, we show in a two-sector growth model, that regulatory price distortion can negatively affect the economy, and then, based on the model, we empirically estimate the impact of the price distortion on output growth in China, using monthly, time series data from 2005M1 to 2012M12. In contrast to the usual argument for regulatory control to mitigate price volatility, we find that regulatory price distortion negatively affects output growth in China during both the short and long term, because it is robust to different measures of output and price distortion. Hence, the argument that using price regulation to protect economic growth is undermined, and subsequently, this study lends its support to energy price deregulation. A market oriented energy price regime may improve the resilience of the domestic economy to global oil price shocks.

Suggested Citation

  • Shi, Xunpeng & Sun, Sizhong, 2017. "Energy price, regulatory price distortion and economic growth: A case study of China," Energy Economics, Elsevier, vol. 63(C), pages 261-271.
    • Handle: RePEc:eee:eneeco:v:63:y:2017:i:c:p:261-271
    DOI: 10.1016/j.eneco.2017.02.006
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    More about this item

    Keywords

    Oil price; Regulatory price; Volatility; Economic growth; China;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation

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