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The effect of oil price on China's exports

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

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.

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Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 20 (2009)
Issue (Month): 4 (December)
Pages: 793-805

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Handle: RePEc:eee:chieco:v:20:y:2009:i:4:p:793-805
Contact details of provider: Web page: http://www.elsevier.com/locate/chieco

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