The impact of oil shocks on China's GDP: a time series analysis

Abstract

AbstractThis study examined the impact of oil shocks on China's gross domestic product (GDP) using the vector autoregressive model taking the period 1970 to 2009. The cointegration test results show that oil shocks have a negative impact on China's GDP. Moreover, the Granger causality test results show that oil prices have a negative causal relationship with China's GDP in the short run. The main recommendation of this study is that China has to increase the flexibility of its labour markets and reduce its oil consumption and its share in the industrial production. Furthermore, it has to adopt a policy that is based on a more flexible inflation targeting regime, and more effective monetary policy. All these policies might help cushion the impact of oil shocks on China's economy.