Abstract
This paper studies the effects of Chinese relative domestic oil prices on net processing exports. Using a set of monthly data ranging from 2002 to 2008, we identify a long-run equilibrium cointegrating relationship between the two inflationary series. The unidirectional short-run Granger causality is running from relative oil prices to net processing exports, while in the long-run, the Granger causality is bidirectional. What is noteworthy is that relative oil price shocks have long-run positive effects on Chinese net processing exports, indicating the existence of an energy cost-driven mechanism of endogenous technological change.
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