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Regulation of petrol and diesel prices and their effects on GDP growth: evidence from China

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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 in the regulatory price. 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 statistics 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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  • Brueckner, Marcus & Hong, Haidi & Vespignani, Joaquin, 2023. "Regulation of petrol and diesel prices and their effects on GDP growth: evidence from China," Working Papers 2023-02, University of Tasmania, Tasmanian School of Business and Economics.
    • Handle: RePEc:tas:wpaper:47700
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    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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