Chinese resource demand and the natural resource supplier

Abstract

This paper provides empirical evidence on the effects of Chinese resource demand on the resource rich natural resource supplier using the example of Australia. A structural VAR model is used to examine the effects of Chinese resource demand, commodity prices and foreign output on the macroeconomy with a formally specified mining and resources exports sector. The key findings of the paper are that shocks to Chinese demand and commodity prices result in a sustained increase in commodity prices and mining investment and a positive impact on the resources sector. However, these shocks eventually lead to lower real domestic output with factors of production moving out of the non-resources sectors and into the resources sector, resulting in a fall in non-resource sector output which is not fully offset by the rise in resources sector output. The results also indicate some market power by the natural resource supplier.

Boom or Gloom? Examining the Dutch Disease in Two-speed Economies

“…Those that have analysed the issue, have typically employed a structural vector autoregression (SVAR), including only a single sector in the non‐resource economy, such as manufacturing or domestic output, see, for example, Hutchison (), Bjørnland () and Dungey et al . (), or a panel data approach studying common movements in manufacturing across numerous countries, see, for example, Ismail (). The overall conclusion has been that effects of, say, mining or petroleum investment on domestic output are small, c.f., Dungey et al .…”

“…The overall conclusion has been that effects of, say, mining or petroleum investment on domestic output are small, c.f., Dungey et al . () or Bjørnland (). However, neither of these approaches accounts for cross‐sectional co‐movement of variables and sectors within a country.…”

Chinese Resource Demand or Commodity Price Shocks: Macroeconomic Effects For an Emerging Market Economy

“…This article further contributes to the literature on the spillover effects of Chinese activity on small open economy commodity exporters. Dungey et al (2014) found that shocks to Chinese resource demand and commodity prices led to lower Australian output after the first year due to falls in non-resource sector output, which was not offset by an increase in the resource output sector, which is consistent with the symptoms of Dutch disease. Subsequently, Dungey et al (2017) found reduced evidence of Dutch disease in the Australia economy in the aftermath of the end of the commodity price boom.…”

“…The emergence of China as an economic powerhouse has contributed to the rapid transformation of the structure of the global economy (Jenkins, 2014). In particular, the unprecedented demand for natural resources for purposes of industrialization and urbanization has led to potentially substantial spillover effects for commodity-exporting countries (Cesa-Bianchi et al, 2012;Dungey et al, 2014Dungey et al, , 2017. The empirical evidence suggests that the impacts of Chinese economic shocks on a typical Latin American economy have tripled since mid-1990(Cesa-Bianchi et al, 2012.…”

“…This paper empirically evaluates the effects of Chinese resource demand on EMEs using Brazil as a representative case using a structural VAR (SVAR) framework closely following Dungey et al (2014). The model contains an external sector consisting of Chinese resource demand, world commodity prices, foreign output and real resource exports and a domestic sector consisting of the non-tradeable primary commodity sector, domestic output, inflation, the interest rate and the real exchange rate.…”