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China's Exports and the Oil Price

Author

Listed:
  • Joao Ricardo Faria
  • Andre Varella Mollick
  • Pedro H. Albuquerque
  • Miguel Leon-Ledesma

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 (2006)’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

  • Joao Ricardo Faria & Andre Varella Mollick & Pedro H. Albuquerque & Miguel Leon-Ledesma, 2008. "China's Exports and the Oil Price," Studies in Economics 0812, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:0812
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    References listed on IDEAS

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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