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.

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