Investigating the Asymmetry in Trade Balance Response to Oil Price Changes: Evidence from China

Abstract

Examining the relation between oil price changes and the trade balance is important for oil-importing countries to formulate policy solutions. This study contributes to the literature by examining the asymmetric effects of changes in oil prices on the trade balance of China, the world’s largest crude oil importer. To this end, the Nonlinear Autoregressive Distributed Lag (NARDL) cointegration approach and Pesaran’s Generalized Variance Decompositions technique are adopted. The results reveal that the trade balance responds asymmetrically to oil price changes in the long run, while the responses are symmetric in the short run. The Generalized Variance Decompositions results indicate that the trade balance is more sensitive to the oil price increases than to decreases. These results indicate that China should support energy-efficient systems to reduce its dependency on imported oil.

Keywords

• Trade Balance
• Oil Price
• NARDL
• Çin

Ticaret Dengesinin Petrol Fiyatlarındaki Değişikliklere Asimetrik Tepkisi: Çin Örneği

Abstract

Petrol fiyatlarındaki değişiklikler ile ticaret dengesi arasındaki ilişkinin incelenmesi, petrol ithal eden ülkelerde uygulanacak politikaların belirlenmesinde oldukça önemlidir. Bu çalışma, petrol fiyatlarındaki değişimlerin dünyanın en büyük ham petrol ithalatçısı olan Çin'in ticaret dengesi üzerindeki asimetrik etkilerini inceleyerek literatüre katkı sağlamaktadır. Bu amaçla, çalışmada Doğrusal Olmayan Dağıtılmış Gecikmeli Otoregresif (NARDL) eşbütünleşme yaklaşımı uygulanmaktadır. Elde edilen bulgular, uzun dönemde petrol fiyatı değişikliklerine karşı ticaret dengesinin asimetrik olarak tepki verdiğini, kısa dönemde ise tepkilerin simetrik olduğunu ortaya koymaktadır. Bu sonuçlar, Çin'in ithal petrole bağımlılığını azaltmak için enerji-etkin sistemleri desteklemesi gerektiğini göstermektedir.

Keywords

• Ticaret Dengesi
• Petrol Fiyatları
• NARDL
• Çin

References

1. Ballı, E., Atık, A. N., & Nugent, J. B. (2020). Time-varying impact of oil shocks on trade balances: evidence using the TVP-VAR model. Energy, 119377. https://doi.org/10.1016/j.energy.2020.119377
2. Chuku, A., Usenobong, A., Ndifreke, R., & Ekpeno, L. (2011). Oil price shocks and the dynamics of the current account balances in Nigeria. OPEC Energy Review, 35 (2), 119–139. https://doi.org/10.1111/j.1753-0237.2011.00186.x
3. Gruber J. W., & Kamin, S. B. (2007). Explaining the global pattern of current account imbalances. J. Int. Money Finance, 26, 500–522. https://doi.org/10.1016/j.jimonfin.2007.03.003
4. International Energy Agency, 2020a. (2020, 9th December) Retrieved from https://www.eia.gov/tools/faqs/faq.php?id=709&t=6
5. International Energy Agency, 2020b. (2020, 9th December) Retrieved from https://www.eia.gov/todayinenergy/detail.php? id=43216#:~:text=China%20remains%20the%20world's%20top,crude%20oil%20imports%20in%202019
6. Killian L., Repucci A., & Spatafora, N. (2009). Oil shocks and external balances. J. Int. Econ, 77, 181–194. https://doi.org/10.1016/j.jinteco.2009.01.001
7. Özlale U., Pekkurnaz D. (2010). Oil prices and current account: A structural analysis for the Turkish economy. Energy Policy, 38, 4489–4496. https://doi.org/10.1016/j.enpol.2010.03.082
8. Pesaran, M. H., & Shin, Y. (1998). Generalized impulse response analysis in linear multivariate models. Economics Letters, 58, 17-29. https://doi.org/10.1016/S0165-1765(97)00214-0

9. Pesaran, M. H., Shin, Y., & Smit, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289-326. https://doi.org/10.1002/jae.616
10. Schubert, S. F. (2014). Dynamic effects of oil price shocks and their impact on the current account. Macroecon Dyn, 18, 316–337. https://doi.org/10.1017/S1365100512000405
11. Shin, Y, Yu, B, & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In W. Horrace & R. Sickles (Eds.), The Festschrift in Honor of Peter Schmidt.: Econometric Methods and Applications (pp. 281-314). New York: Springer. https://doi.org/10.1007/978-1-4899-8008-3__9
12. O’Sullivan, S. (2019). China: Growing import volumes of LNG highlight China’s rising energy import dependency. Oxford Institute for Energy Studies. Retrieved from https://www.oxfordenergy.org/wpcms/wp-content/uploads/2019/06/China-growing-import-volumes-of-LNG-highlight-China%E2%80%99s-rising-energy-import-dependency.pdf
13. Yalta, A. Y., & Yalta, A. T. (2017). Dependency on imported oil and its effects on current account. Energy Sources, Part B: Economics, Planning, and Policy, 12(10), 859-867. https://doi.org/10.1080/15567249.2017.1315753
14. Zaouali, S. 2007. Impact of higher oil prices on the Chinese economy. OPEC Rev., 31, 191–214. https://doi.org/10.1111/j.1468-0076.2007.00183.x