Heterogeneous effects of oil price fluctuations: Evidence from a nonparametric panel data model in Canada

Abstract

In this paper, we employ a nonparametric panel data technique to examine the impacts of oil price fluctuations on GDP per capita in two groups of oil-exporting and oil-importing provinces in Canada over the period 1984–2016. This technique allows the trend and coefficient functions to vary over the sample period as unknown functional forms. The results show that the relationship between oil price and GDP per capita is time-varying in both groups of Canadian provinces. While both groups of provinces benefited from the striking oil price hike of the 2000s, the relatively low oil prices before 2000 had positive effects only in oil-importing provinces. Our results highlight the vital role of interprovincial trade in mitigating the adverse effects of oil price volatility on the Canadian provinces.