Conduction Effects Of The International Crude Oil Price Volatility On China's Exports

The increase in world oil prices in recent years has occurred concurrently with a rapid expansion of China's exports in the world markets, despite China being a large oil consuming country. Thus, this study focuses on the transmission mechanisms and effects of oil price shock on China's exports.In this study, the existence of a structural change has been noted. Firstly, the oil market price mechanism has changed greatly since oil demand and speculation had imposed more influence on oil prices. Secondly, imperfections on price relationship between crude oil and petroleum products still exist in China. Thirdly, the oil demand of China's export sector has been increasing as the trade pattern upgraded and the oil intensity higher than before, and China's exports is now facing intense competition.The empirical analysis employs multivariate vector autoregression (VAR) model, based on a monthly time series from 1991:1 to 2010:10. The results indicate that the transmission effect has changed in July 1999. The rise in world oil prices causes a decline in China's exports from 1999:1 to 1999:6. After July 1999, the rise in oil prices causes an increase in China's exports, and a two-way causality appears, that is, the expansion of China's exports makes oil prices go up. The latter indicates that the world oil price is no longer exogenous to China. The empirical analysis finds the transmission effect, and validates the existence of structural change as well.