On the asymmetric effects of changes in crude oil prices on economic growth: New evidence from China's 31 provinces

• Published in: Australian economic papers Vol. 60; no. 2; pp. 328 - 360
• Main Authors: Baek, Jungho, Lu, Guimin, Nam, Soojoong
• Format: Journal Article
• Language: English
• Published: Melbourne John Wiley & Sons Australia, Ltd 01.06.2021; Blackwell Publishing Ltd
• Subjects: Asymmetry; asymmetry effect; C22; China; Crude oil; Crude oil prices; Economic growth; NARDL; O53; oil prices; Petroleum; Provinces; Q43; Symmetry; China
• ISSN: 0004-900X; 1467-8454
• DOI: 10.1111/1467-8454.12207

Although previous literature has addressed an asymmetric response of economic growth to oil price movements in developed economies, less widely recognised is the possibility of such responses in developing economies. Thus, the primary thrust of the present article is to investigate the asymmetric effects of changes in crude oil prices on growth in a developing economy, particularly China. To examine this subject thoroughly, we first assume oil price symmetry and apply the method of the linear autoregressive distributed lag (ARDL) to China's 31 provinces. We discover that the price of crude oil has a significant effect on growth mostly in the short‐run. We then separate oil price hikes from oil price plunges and implement the method of the nonlinear ARDL (NARDL) to reveal that the price of crude oil has indeed an important role in affecting growth across China's 31 provinces in both the short‐ and long‐run. Further, there is evidence that fluctuations in oil prices appear to have asymmetric effects on growth for some provinces, though not all, in the short‐ and long‐run.