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The Effect of Oil Price on China's Exports

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.
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Submitted on : Tuesday, October 30, 2012 - 1:35:47 PM
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João Faria, André Mollick, Pedro Albuquerque, Miguel León-Ledesma. The Effect of Oil Price on China's Exports. China Economic Review, Elsevier, 2009, 20 (4), pp.793-805. ⟨10.1016/j.chieco.2009.04.003⟩. ⟨halshs-00747033⟩



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