Do emerging markets matter in the world oil pricing system? - evidence of imported crude by China and India

Li, Hong and Lin, Xiaowen (2011) Do emerging markets matter in the world oil pricing system? - evidence of imported crude by China and India. Energy Policy, 39(8), pp. 4624-4630. ISSN (print) 0301-4215

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Abstract

This paper provides empirical evidence on the changing structure of world oil price system by identifying an additional driver – emerging market factor. We choose China and India as a representative of emerging markets to examine if the quantity of crude oil imported by China and India is significant in the existing oil pricing system (Kaufmann et.al. (2004). Our data starts from January 2002 and ends in March 2010 which includes the oil shock of 2007-2008. We utilize cointegration and Error-Correction-Model framework developed by Engle-Granger (1987) and Gregory-Hansen (1996) in the analysis. Our results indicate that demand from emerging market has become a significant factor in the world oil pricing system since 2003. This result is significant as it lends empirical support to the widely held conjecture that the oil shock of 2007-2008 is a demand-led shock (Hamilton, 2009). Our result also has significant policy implications that go beyond the oil shock. The emerging market factor is there to stay and reflects the changing power between emerging and developed economies in the world economic system as a result of decades of fast economic development in the former. It will certainly influence policy issues related to oil and beyond.

Item Type: Article
Research Area: Economics and econometrics
Faculty, School or Research Centre: Faculty of Arts and Social Sciences > School of Economics (until November 2012)
Depositing User: Hong Li
Date Deposited: 01 Jul 2011 15:06
Last Modified: 16 Jul 2012 21:50
URI: http://eprints.kingston.ac.uk/id/eprint/19013

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