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Effects of Government Regulation of Diesel and Petrol Prices on GDP Growth: Evidence from China

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  • Markus Brueckner
  • Haidi Hong
  • Joaquin Vespignani

Abstract

This paper presents estimates of the effects that government regulation of diesel and petrol prices has on GDP growth. Theory suggests that when supply curves are convex, a decrease in the regulatory price has a larger effect on output than a tantamount increase. Motivated by this theoretical insight, we specify VAR models with asymmetric effects of positive and negative changes in the regulatory prices of diesel and petrol. We estimate the VAR models on quarterly data from China’s national accounts during the period Q1 1998 to Q4 2018. Our main findings are that: (i) negative growth rates of regulatory diesel and petrol prices significantly reduce GDP growth; (ii) positive growth rates of regulatory diesel and petrol prices have a positive, but quantitatively small and statistically insignificant effect on GDP growth.

Suggested Citation

  • Markus Brueckner & Haidi Hong & Joaquin Vespignani, 2023. "Effects of Government Regulation of Diesel and Petrol Prices on GDP Growth: Evidence from China," ANU Working Papers in Economics and Econometrics 2023-690, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2023-690
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    Keywords

    GDP growth; energy price regulation;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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