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The effect of oil price on China's exports

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  • Faria, João Ricardo
  • Mollick, André Varella
  • Albuquerque, Pedro H.
  • León-Ledesma, Miguel A.

Abstract

The increase in oil prices in recent years has occurred concurrently with a rapid expansion of Chinese exports in the world markets, despite China being an oil importing country. In this paper we develop a theoretical model that explains the positive correlation between Chinese exports and the oil price. The model shows that Chinese growth can lead to an increase in oil prices that has a stronger impact on its export competitors. This is due to the large labor force surplus of China. We then examine this hypothesis by estimating a reduced form equation for Chinese exports using Rodrik [Rodrik, Dani, 2006. What's so special about China's exports? China and World Economy 14, 1-19.]'s measure of export competitiveness, together with the oil price, productivity, real exchange rate, and foreign industrial production over the monthly 1992-2005 period. The results suggest a stable relationship and yields slightly positive values for the price of oil and elastic coefficients for export competitiveness, along with the expected negative elasticity for the real exchange rate.

Suggested Citation

  • Faria, João Ricardo & Mollick, André Varella & Albuquerque, Pedro H. & León-Ledesma, Miguel A., 2009. "The effect of oil price on China's exports," China Economic Review, Elsevier, vol. 20(4), pages 793-805, December.
  • Handle: RePEc:eee:chieco:v:20:y:2009:i:4:p:793-805
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    3. Muhammad Shahbaz & Aviral Kumar Tiwari & Mohammad Iqbal Tahir, 2015. "Analyzing time-frequency relationship between oil price and exchange rate in Pakistan through wavelets," Journal of Applied Statistics, Taylor & Francis Journals, vol. 42(4), pages 690-704, April.
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    5. Wu, Libo & Li, Jing & Zhang, ZhongXiang, 2013. "Inflationary effect of oil-price shocks in an imperfect market: A partial transmission input–output analysis," Journal of Policy Modeling, Elsevier, vol. 35(2), pages 354-369.
    6. Chung Tin Fah & Ong Jie Shi, 2017. "Plunging Oil Prices Impact Malaysia’S And Indonesia’S Economy," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 5(1), pages 49-68.
    7. Bouoiyour, Jamal & Selmi, Refk & Tiwari, Aviral Kumar & Shahbaz, Muhammad, 2015. "The nexus between oil price and Russia's real exchange rate: Better paths via unconditional vs conditional analysis," Energy Economics, Elsevier, vol. 51(C), pages 54-66.
    8. He, Y.X. & Zhang, S.L. & Yang, L.Y. & Wang, Y.J. & Wang, J., 2010. "Economic analysis of coal price-electricity price adjustment in China based on the CGE model," Energy Policy, Elsevier, vol. 38(11), pages 6629-6637, November.
    9. Ju, Keyi & Zhou, Dequn & Zhou, P. & Wu, Junmin, 2014. "Macroeconomic effects of oil price shocks in China: An empirical study based on Hilbert–Huang transform and event study," Applied Energy, Elsevier, vol. 136(C), pages 1053-1066.
    10. Prasad Bal, Debi & Narayan Rath, Badri, 2015. "Nonlinear causality between crude oil price and exchange rate: A comparative study of China and India," Energy Economics, Elsevier, vol. 51(C), pages 149-156.
    11. Zhang, Dayong & Broadstock, David C. & Cao, Hong, 2014. "International oil shocks and household consumption in China," Energy Policy, Elsevier, vol. 75(C), pages 146-156.
    12. Zhang, Jin & Xie, Mingjia, 2016. "China's oil product pricing mechanism: What role does it play in China's macroeconomy?," China Economic Review, Elsevier, vol. 38(C), pages 209-221.
    13. Du, Limin & Yanan, He & Wei, Chu, 2010. "The relationship between oil price shocks and China's macro-economy: An empirical analysis," Energy Policy, Elsevier, vol. 38(8), pages 4142-4151, August.
    14. repec:dau:papers:123456789/11663 is not listed on IDEAS
    15. Wu, Gang & Zhang, Yue-Jun, 2014. "Does China factor matter? An econometric analysis of international crude oil prices," Energy Policy, Elsevier, vol. 72(C), pages 78-86.
    16. Jamal BOUOIYOUR & Refk SELMI & Muhammad SHAHBAZ & Aviral Kumar TIWARI, 2014. "The Nexus between Oil price and Russia’s Real Exchange rate: Better Paths via Unconditional vs Conditional Analysis," Working Papers 2014-2015_4, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Sep 2014.
    17. De Vita, Glauco & Trachanas, Emmanouil, 2016. "‘Nonlinear causality between crude oil price and exchange rate: A comparative study of China and India’ — A failed replication (negative Type 1 and Type 2)," Energy Economics, Elsevier, vol. 56(C), pages 150-160.
    18. repec:eee:energy:v:125:y:2017:i:c:p:55-61 is not listed on IDEAS
    19. Tiwari, Aviral Kumar & Dar, Arif Billah & Bhanja, Niyati, 2013. "Oil price and exchange rates: A wavelet based analysis for India," Economic Modelling, Elsevier, vol. 31(C), pages 414-422.
    20. Muhammad Faraz Riaz & Maqbool Hussain Sial & Samia Nasreen, 2016. "Impact of Oil Price Volatility on Manufacturing Production of Pakistan," Bulletin of Energy Economics (BEE), The Economics and Social Development Organization (TESDO), vol. 4(1), pages 23-34, March.
    21. Aviral Kumar Tiwari, 2015. "Oil Price and Exchange Rate in Malaysia: A Time-Frequency Analysis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(4), pages 661-670, April.
    22. Wei, Yanfeng & Guo, Xiaoying, 2016. "An empirical analysis of the relationship between oil prices and the Chinese macro-economy," Energy Economics, Elsevier, vol. 56(C), pages 88-100.
    23. Aktas, Erkan & Özenç, Çiğdem & Arıca, Feyza, 2010. "The Impact of Oil Prices in Turkey on Macroeconomics," MPRA Paper 8658, University Library of Munich, Germany, revised 15 Jun 2010.

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