Do emerging markets matter in the world oil pricing system? Evidence of imported crude by China and India
This paper provides empirical evidence on the changing structure of world oil price system by identifying an additional driver-emerging market factor. We choose China and India as a representative of emerging markets to examine if the quantity of crude oil imported by China and India is significant in the existing oil pricing system (Kaufmann et al., 2004). Our data starts from January 2002 and ends in March 2010, which includes the oil shock of 2007-2008. We utilize cointegration and error correction model framework developed by Engle-Granger (1987) and Gregory-Hansen (1996) in the analysis. Our results indicate that demand from emerging markets has become a significant factor in the world oil pricing system since 2003. This result is significant as it lends empirical support to the widely held conjecture that the oil shock of 2007-2008 is a demand-led shock (Hamilton, 2009). Our result also has significant policy implications that go beyond the oil shock. The emerging market factor is there to stay and reflects the changing power between emerging and developed economies in the world economic system as a result of decades of fast economic development in the former. It will certainly influence policy issues related to oil and beyond.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James D. Hamilton, 2009.
"Causes and Consequences of the Oil Shock of 2007-08,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 215-283.
- James D. Hamilton, 2010. "Causes and consequences of the oil shock of 2007–08," FRB Atlanta CQER Working Paper 2009-02, Federal Reserve Bank of Atlanta.
- James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," NBER Working Papers 15002, National Bureau of Economic Research, Inc.
- Kaufmann, Robert K. & Dees, Stephane & Gasteuil, Audrey & Mann, Michael, 2008. "Oil prices: The role of refinery utilization, futures markets and non-linearities," Energy Economics, Elsevier, vol. 30(5), pages 2609-2622, September.
- Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, June.
- Griffin, James M, 1985. "OPEC Behavior: A Test of Alternative Hypotheses," American Economic Review, American Economic Association, vol. 75(5), pages 954-63, December.
- Kaufmann, Robert K. & Ullman, Ben, 2009. "Oil prices, speculation, and fundamentals: Interpreting causal relations among spot and futures prices," Energy Economics, Elsevier, vol. 31(4), pages 550-558, July.
- Allan w. Gregory & Bruce E. Hansen, 1992.
"residual-Based Tests for Cointegration in Models with Regime Shifts,"
862, Queen's University, Department of Economics.
- Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
- Gregory, A.W. & Hansen, B.E., 1992. "Residual-Based Tests for Cointegration in Models with Regime Shifts," RCER Working Papers 335, University of Rochester - Center for Economic Research (RCER).
- Xingjun Zhao & Yanrui Wu, 2007.
"Determinants of China’s Energy Imports: An Empirical Analysis,"
Economics Discussion / Working Papers
07-03, The University of Western Australia, Department of Economics.
- Zhao, Xingjun & Wu, Yanrui, 2007. "Determinants of China's energy imports: An empirical analysis," Energy Policy, Elsevier, vol. 35(8), pages 4235-4246, August.
- Loderer, Claudio, 1985. " A Test of the OPEC Cartel Hypothesis: 1974-1983," Journal of Finance, American Finance Association, vol. 40(3), pages 991-1006, July.
- A.F Alhajji & David Huettner, 2000. "OPEC and World Crude Oil Markets from 1973 to 1994: Cartel, Oligopoly, or Competitive?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 31-60.
- Robert K. Kaufmann, Stephane Dees, Pavlos Karadeloglou and Marcelo Sanchez, 2004. "Does OPEC Matter? An Econometric Analysis of Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 67-90.
- Stephen Leybourne & Paul Newbold, 2003. "Spurious rejections by cointegration tests induced by structural breaks," Applied Economics, Taylor & Francis Journals, vol. 35(9), pages 1117-1121.
- DEES Stéphane & KARADELOGLOU Pavlos & KAUFMANN Robert & SANCHEZ Marcelo, .
"Modelling the World Oil Market: Assessment of a Quarterly Econometric Model,"
- Dees, Stephane & Karadeloglou, Pavlos & Kaufmann, Robert K. & Sanchez, Marcelo, 2007. "Modelling the world oil market: Assessment of a quarterly econometric model," Energy Policy, Elsevier, vol. 35(1), pages 178-191, January.
- MacKinnon, James G, 1996.
"Numerical Distribution Functions for Unit Root and Cointegration Tests,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec..
- James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
- Kaufmann, Robert K., 2011. "The role of market fundamentals and speculation in recent price changes for crude oil," Energy Policy, Elsevier, vol. 39(1), pages 105-115, January.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-76, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Lin, Sharon Xiaowen & Tamvakis, Michael, 2010. "OPEC announcements and their effects on crude oil prices," Energy Policy, Elsevier, vol. 38(2), pages 1010-1016, February.
- Lin, Sharon Xiaowen & Tamvakis, Michael N., 2001. "Spillover effects in energy futures markets," Energy Economics, Elsevier, vol. 23(1), pages 43-56, January.
- He, Ling-Yun & Fan, Ying & Wei, Yi-Ming, 2009. "Impact of speculator's expectations of returns and time scales of investment on crude oil price behaviors," Energy Economics, Elsevier, vol. 31(1), pages 77-84, January.
- Skeer, Jeffrey & Wang, Yanjia, 2007. "China on the move: Oil price explosion?," Energy Policy, Elsevier, vol. 35(1), pages 678-691, January.
When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:39:y:2011:i:8:p:4624-4630. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.