Globalization, Endogenous Oil Price Shocks and Chinese Economic Activity

Abstract

Using a structural vector autoregressive model, this study investigates the extent to which international oil price shocks have influenced the Chinese economy over the period 1991–2014. Given China’s intensified macroeconomic activity and its increasing demand for energy resources, we also examine the endogenous response of international oil prices to economic conditions in the country. To that end, we derive and empirically estimate a small open-economy New Keynesian model for China and the rest of the world. Our results show that the Chinese economy is relatively more sensitive to global economic conditions than to domestic policy actions. Global productivity shocks appear to be the most important variable causing Chinese macroeconomic activity through trade, where oil prices impact aggregate demand negatively.

Can the resource curse be avoided? An empirical examination of the nexus between crude oil price and economic growth

“…Hence, they conclude that the impact of oil price changes on the GDP growth rate are much slower for developed net oil-importing economies like the US and Japan than on an emerging economy like China. Similar results have been reported for China (Khan et al 2017) and India (EXIM Bank 2018). However, these findings for net oil importers contradict the findings of Chen et al (2015) who posit that oil price positively impacts the economic growth of the Chinese economy.…”