China's Exports and the Oil Price

Joao Ricardo Faria (), Andre Varella Mollick (), Pedro H. Albuquerque () and Miguel Leon-Ledesma ()

Studies in Economics from Department of Economics, University of Kent

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.

Keywords: China; Oil prices; Competitiveness; Exports; Productivity (search for similar items in EconPapers)
JEL-codes: F14 F43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-dev, nep-ene, nep-opm and nep-tra
Date: 2008-11

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