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Regulation of Petrol and Diesel Prices and their Effects 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.

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  • Markus Brueckner & Haidi Hong & Joaquin Vespignani, 2023. "Regulation of Petrol and Diesel Prices and their Effects on GDP Growth: Evidence from China," CAMA Working Papers 2023-17, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2023-17
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    More about this item

    Keywords

    GDP growth; energy price regulation;

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy

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