International Effects of Oil Price Shocks and Trade Spillover

Kheirandish, Elham; Moshiri, Saeed; Khiabani, Naser; Jalali-Naini, Ahmadreza

doi:10.22054/ijer.2020.43479.770

Document Type : Research Paper

Authors

¹ Ph.D. Student, Economics, Institute for Management and Planning Studies, Tehran, Iran.

² Professor, Economics, University of Saskatchewan, Saskatchewan, Canada

³ Associate Professor, Economics, Allameh Tabataba’i University, Tehran, Iran.

⁴ Associate Professor, Economics, Institute for Management and Planning Studies, Tehran, Iran

https://doi.org/10.22054/ijer.2020.43479.770

Abstract

Oil price shocks have direct and indirect impacts on the economies of oil-exporting and oil-importing countries. The direct impacts are through demand and supply channels and the indirect (spillover) impacts are through interaction between the countries. Most studies have focused on the direct effects of the oil price shocks in a specific country or a region and research works on indirect impacts are limited. In this research, the direct and indirect effects (spillover) of oil shocks on both groups of oil-exporting and oil-importing countries are estimated using a dynamic system model. The spillover effects are defined and measured by the “Trade Ratio” and “Weighted Average Economic Growth” indicators. The sample includes 30 oil-exporting and oil-importing countries with a share of 73 percent of the world’s economy. The results show that a positive oil price shock reduces economic growth in oil-importing countries and increases it in oil-exporting countries, but international trade between the oil- exporting and oil-importing countries mitigates the impact of oil shocks on economic growth of both groups.

Keywords

References

بهرامی، جاوید و نصیری، سمیرا (1390)، شوک نفتی و بیماری هلندی، بررسی موردی ایران، پژوهش‌های اقتصادی ایران، 48، 54-25.

Aarón, G., & Sherzod, N. (2009). Oil price fluctuations and its effect on GDP growth: A case study of USA and Sweden. Bachelor Thesis within Economics. Jonkoping international business school. Jonkoping University.

Abeysinghe, T. (1998). The Asian crisis, trade links and output multipliers: A structural VAR approach. In National University of Singapore Department of Economics Working Paper.

Abeysinghe, T. (2001). Estimation of direct and indirect impact of oil price on growth. Economics letters, 73(2), 147-153.

Abeysinghe, T., & Forbes, K. (2005). Trade linkages and output‐multiplier effects: A structural VAR approach with a focus on Asia. Review of International Economics, 13(2), 356-375.

Abrigo, M. R., & Love, I. (2016). Estimation of panel vector autoregression in Stata. The Stata Journal, 16(3), 778-804.

Allegret, J. P., Mignon, V., & Sallenave, A. (2015). Oil price shocks and global imbalances: Lessons from a model with trade and financial interdependencies. Economic Modelling, 49, 232-247.

Arora, V., & Vamvakidis, A. (2005). How much do trading partners matter for economic growth?. IMF Staff Papers, 52(1), 24-40.

Backus, D. K., Kehoe, P. J., & Kydland, F. E. (1992). International real business cycles. Journal of Political Economy, 100(4), 745-775.

Backus, D., Kehoe, P. J., & Kydland, F. E. (1992). Dynamics of the Trade Balance and the Terms of Trade: The S-curve (No. w4242). National Bureau of Economic Research.

Barsky, R. B., & Kilian, L. (2004). Oil and the Macroeconomy since the 1970s. Journal of Economic Perspectives, 18(4), 115-134.

Baxter, M., & Kouparitsas, M. A. (2005). Determinants of business cycle comovement: A robust analysis. Journal of Monetary Economics, 52(1), 113-157.

Bernanke, B. S., Gertler, M., Watson, M., Sims, C. A., & Friedman, B. M. (1997). Systematic monetary policy and the effects of oil price shocks. Brookings Papers on Economic Activity, 1997(1), 91-157.

Boheman, H., & Maxén, J. (2015). Oil Price Shocks Effect on Economic Growth-OPEC versus non-OPEC Economies, Lund University Publications Student Papers.

Bouzid, A. (2012). The relationship of oil prices and economic growth in Tunisia: A vector error correction model analysis. The Romanian Economic Journal, 43, 3-22.

Burbidge, J., & Harrison, A. (1984). Testing for the effects of oil-price rises using vector autoregressions. International Economic Review, 459-484.

Calderon, C., Chong, A., & Stein, E. (2007). Trade intensity and business cycle synchronization: Are developing countries any different?. Journal of International Economics, 71(1), 2-21.

Cologni, A., & Manera, M. (2008). Oil prices, inflation and interest rates in a structural cointegrated VAR model for the G-7 countries. Energy Economics, 30(3), 856-888.

Corden, W. M., & Neary, J. P. (1982). Booming sector and de-industrialisation in a small open economy. The Economic journal, 92(368), 825-848.

Darby, M. R. (1982). The price of oil and world inflation and recession. The American Economic Review, 72(4), 738-751.

Darvas, Z. (2012). Real effective exchange rates for 178 countries: a new database.

Du, L., Yanan, H., & Wei, C. (2010). The relationship between oil price shocks and China’s macro-economy: An empirical analysis. Energy Policy, 38(8), 4142-4151.

Edirneligil, A., & Mucuk, M. (2014). The effects of oil price on Turkish economic growth (No. 0702083). International Institute of Social and Economic Sciences.

Esfahani, H. S., Mohaddes, K., & Pesaran, M. H. (2014). An empirical growth model for major oil exporters. Journal of Applied Econometrics, 29(1), 1-21.

Forbes, K. J., & Abeysinghe, T. (2001). Trade Linkages and Output-Multiplier Effects: A Structural VAR Approach with a Focus
on Asia.

Ftiti, Z., Guesmi, K., Teulon, F., & Chouachi, S. (2016). Relationship between crude oil prices and economic growth in selected OPEC countries. The Journal of Applied Business Research, 32(1), 11-22.

Frankel, J. A., & Rose, A. K. (1998). The endogeneity of the optimum currency area criteria. The Economic Journal, 108(449),
1009-1025.

Gisser, M., & Goodwin, T. H. (1986). Crude oil and the macroeconomy: Tests of some popular notions: Note. Journal of Money, Credit and Banking, 18(1), 95-103.

Gounder, R., & Bartleet, M. (2007, June). Oil price shocks and economic growth: Evidence for New Zealand, 1989-2006. In New Zealand Association of Economist Annual Conference, Christ Church, and 27th-29th June: http://docs. google. com/viewer.

Hamilton, J. D. (1983). Oil and the macroeconomy since World War II. Journal of Political Economy, 91(2), 228-248.

Hooker, M. A. (1996). What happened to the oil price-macroeconomy relationship?. Journal of Monetary Economics, 38(2), 195-213.

Huntington, H. G., Barrios, J. J., & Arora, V. (2019). Review of key international demand elasticities for major industrializing economies. Energy Policy, 133, 110878.

Inklaar, R., Jong-A-Pin, R., & De Haan, J. (2008). Trade and business cycle synchronization in OECD countries—A re-examination. European Economic Review, 52(4), 646-666.

Jiménez-Rodríguez, R., & Sánchez, M. (2005). Oil price shocks and real GDP growth: empirical evidence for some OECD countries. Applied Economics, 37(2), 201-228.

Kilian, L. (1998). Small-sample confidence intervals for impulse response functions. Review of Economics and Statistics, 80(2), 218-230.

Kose, M. A., & Yi, K. M. (2006). Can the standard international business cycle model explain the relation between trade and comovement?. Journal of International Economics, 68(2),
267-295.

Kurihara, Y. (2015). Oil prices and economic growth in developed countries. International Journal of Business and Social Science, 6(11), 40-46.

Le, T. H., & Chang, Y. (2013). Oil price shocks and trade imbalances. Energy Economics, 36, 78-96.

Mehrara, M., & Mohaghegh, M. (2011). Macroeconomic dynamics in the oil exporting countries: a panel VAR study. International Journal of Business and Social Science, 2(21).

Monjazeb, M., Souri, A., & Shahabi, Z. (2013). The effect of oil price shocks on economic growth (case study; selected oil exporting countries). Technical Journal of Engineering and Applied Sciences, 3(17), 2118-2122.

Moshiri, S., & Foroutan, F. (2006). Forecasting nonlinear crude oil futures prices. The Energy Journal, 81-95.

Moshiri, S. (2015). Asymmetric effects of oil price shocks in oil‐exporting countries: the role of institutions. OPEC Energy Review, 39(2), 222-246.

Oyeyemi, A. M. (2013). The growth implications of oil price shock in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 4(3), 343-349.

Rasche, R. H., & Tatom, J. A. (1981, January). Energy price shocks, aggregate supply and monetary policy: The theory and the international evidence. In Carnegie-Rochester Conference Series on Public Policy (Vol. 14, pp. 9-93). North-Holland.

Rogoff, K. (2006). Oil and the global economy. Manuscript,Harvard University.

Rotemberg, J. J., & Woodford, M. (1996). Imperfect competition and the effects of energy price increases on economic activity (No. w5634). National Bureau of Economic Research.

Sachs, J. D., & Warner, A. M. (1995). Natural resource abundance and economic growth (No. w5398). National Bureau of Economic Research.

Santini, D. J. (1985). The energy-squeeze model: energy price dynamics in US business cycles. International Journal of Energy Systems, 5(1), 18-25.

Torres, F., Giavazzi, F., & Francisco, T. (Eds.). (1993). Adjustment and growth in the European Monetary Union. Cambridge University Press.

Iranian Journal of Economic Research

International Effects of Oil Price Shocks and Trade Spillover

References

References

Volume 25, Issue 83 - Serial Number 83
July 2020
Pages 29-59

International Effects of Oil Price Shocks and Trade Spillover

References

References

Volume 25, Issue 83 - Serial Number 83July 2020Pages 29-59

Volume 25, Issue 83 - Serial Number 83
July 2020
Pages 29-59