Impacts of international oil price fluctuations on China’s PM2.5 concentrations: a wavelet analysis

Yongyou Nie, Pingchao Chen, Tasangyao Zhang and Enci Wang

Economic Research-Ekonomska Istraživanja, 2020, vol. 33, issue 1, 2488-2508

Abstract: In the past few years, China’s air quality, particularly PM2.5 concentrations, has received extensive attention. China is increasingly dependent on imported oil, and the international oil price fluctuations influence the air quality by two paths. A rise in oil prices puts pressure on the economy and reduces energy consumption, which could improve air quality. However, the substitution effect by high oil prices tends to increase the use of environmentally unfriendly energies, which worsens air quality. In this study, the authors employ wavelet analysis to determine how international oil price fluctuations affect PM2.5 concentrations in China. The authors process a sample of 12 typical Chinese cities, which are discretely distributed in the northeast, north, east, central, south, and southwest of China. The results show that in most cities international crude oil prices are positively correlated to the PM2.5 concentrations in the short term (1–4 months) and that the fluctuations in oil prices are usually ahead of the changes of PM2.5 concentrations. It is more pronounced in industrially developed cities such as in Shanghai. An extension of the study to include the country data yields more consistent findings. Empirical analysis indicates that, in the short run, the substitution effect caused by oil price fluctuations exerts a stronger impact on PM2.5 concentrations.

Date: 2020
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DOI: 10.1080/1331677X.2019.1656098

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