Skip to main content

Advertisement

SpringerLink
Log in

Asymmetric effects of oil price shocks on Asian economies: a nonlinear analysis

  • Published:
Empirical Economics Aims and scope Submit manuscript

Abstract

This study examines the impact of asymmetric oil price shocks on economic activity in selected 13 Asian economies, namely Bangladesh, China, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka and Thailand by employing nonlinear autoregressive distributed lag approach over the period 1980Q1–2014Q2. Our results provide no evidence of a long-run relationship between positive and negative oil price changes and economic activity in Bangladesh, China, India, Pakistan, the Philippines, Singapore, Sri Lanka and Thailand. In the short run, real GDP responds symmetrically to positive and negative oil price changes in China, South Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka and Thailand, while it behaves asymmetrically to oil price shocks in Bangladesh, Hong Kong, India, Indonesia and Japan. However, no long-run asymmetry in oil price changes and economic activity was detected in all the countries. The impulse response analysis reveals that oil price shocks have limited asymmetric effects on GDP growth in Bangladesh, Indonesia, Japan, Malaysia, Pakistan and Singapore, while oil price shocks have symmetric impact on the GDP growth in India, South Korea, the Philippines, Sri Lanka and Thailand. It is also observed that the impact of oil price shocks is relatively higher in Bangladesh, China, Indonesia, Malaysia and Pakistan than Hong Kong, Japan, South Korea and Singapore. In case of India, the Philippines, Sri Lanka and Thailand, the impact of oil price shocks is similar to that of Hong Kong, Japan, South Korea and Singapore.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

(Source: BP Statistical Review of World Energy (2016))

Fig. 2
Fig. 3

We’re sorry, something doesn't seem to be working properly.

Please try refreshing the page. If that doesn't work, please contact support so we can address the problem.

Notes

  1. Oil price might affect the economy by supply-side channel (Rasche and Tatom 1977; Barro 1984); wealth transfer channel (Barsky and Kilian 2004); real balance channel (Brown and Yucel 2002); and monetary policy channel (Bernanke et al. 1997). For further detail, see Khan and Ahmed (2014).

  2. The share of Asia in world oil consumption was increased from 27.47% in 2001 to 34.15% in 2015. Similarly, oil imports of Asian countries increased from 3914 thousand barrels daily in 2001 to 7006 thousand barrels daily in 2015, registering 79% increase (BP Statistical Review of World Energy 2016).

  3. Economic and financial shocks (e.g. 1997–1998 Asian financial crisis, the 2001 dot com bubble burst, the 2007 subprime crisis in the USA and global financial crisis of 2008–2009), wars (e.g. the 11 September 2001 terrorist attack, the Gulf wars in 1991 and 2003 and the Arab Spring since 2010) may cause unexpected changes in the behavior of economic and financial time series, which induce structural breaks and nonlinearities in the oil price economic growth relationship (Atil et al. 2014).

  4. If asset prices deviate from their fundamentals, we can say it bubbles.

  5. Hamilton (2009) reported that big increases in the oil prices were associated with events such as the 1973–1974 embargo by the Organization of Arab Petroleum Exporting Countries, the Iranian Revolution of 1978, the Iran–Iraq War in 1980 and the first Persian Gulf War in 1990 and each of these event was followed by global economic recessions.

  6. Reallocation happens when labour and capital are sector specific and cannot be moved from one sector to another within the same industry. Such nonlinearities frequently happen in the oil price–output relationship.

  7. The NARDL has gained popularity in recent years in capturing the asymmetric impact in a diverse field. For example, Atil et al. (2014) used NARDL to study asymmetric response of gasoline and natural gas prices in the USA to variations in crude oil prices. Nusair (2016) investigated the impact of asymmetric oil price shocks on the real GDP in GCC countries.

  8. Lower case letters are the logarithmic values.

  9. As on 2014, Asia accounts for 40% of world oil trade and its oil imports are more than 75% from the Middle East (Mitchell 2014).

  10. Available at http://www.bp.com/statistical;review.

  11. We estimate ECM for countries where cointegration relationship is found and test for Granger causality to determine the direction of causality among the variables.

  12. It is well established that fall in the oil prices leads to low transport and other business costs. Lower oil prices can reduce cost of living, lower inflation, increase aggregate expenditure on goods and services and add to real GDP. On the other hand, when higher oil prices stimulate real GDP, it implies that oil is complementary for economic growth.

  13. The government in these countries insulates consumers by offering subsidy on oil which increases fiscal deficit. It is argued that subsidy will not benefit consumers as the saving from households would not be drained out due to extra tax burden (Pal and Mitra 2016).

  14. Huntington (1998) argued that oil prices are essential energy prices that are transmitted to the economy through changes in refined petroleum products.

  15. For instance, World Energy Outlook (2015) reported that pre-tax fuel subsidy in Bangladesh was 1.7% of GDP, China (0.2% of GDP), India (1.9% of GDP), Indonesia (3.1% of the GDP), Malaysia (1.6% of GDP), Pakistan (2.7% of GDP), Philippines (0.2% of GDP), Sri Lanka (0.5% of GDP) and Thailand (0.6% of GDP) in 2011.

  16. Indonesia and Malaysia, respectively, provided 3.1% of GDP and 1.6% of GDP as fuel subsidies in 2014.

  17. The reason for limited impact of oil price shocks on Japanese economy is that Japan has made significant efforts to diversify energy resources by building more renewable energy power plants. Oil-based new power plants in Japan are banned, particularly after the Fukushima nuclear disaster. In addition, as younger population resides densely in metropolitan areas, the demand for oil is decreasing. Hence, on average crude oil import in Japan has been on a decreasing trend since 1996 (Cunado et al. 2015).

  18. Since Singapore is oil refinery economy, oil price changes affect both exports and imports of crude oil.

  19. Subsidy is considered as an opportunity cost because the government sells oil in the domestic market below the world price. For net oil exporters, energy subsidies are a mechanism to redistribute wealth from natural resources. It helps the poor and promotes economic growth. However, for net oil importers, it has direct fiscal costs. For instance, it fosters energy-intensive growth and discourages the expansion of labour-intensive industries. Energy subsidy has high opportunity costs such as foregone investment in infrastructure, health and schooling, increases budget deficit, creates crowding-out in domestic capital market and acts as hidden tax on economic development.

References

  • Abeysinghe T (2001) Estimation of direct and indirect impact of oil price on growth. Econ Lett 73:147–153

    Article  Google Scholar 

  • Ahmed HL, Wadud IM (2011) Role of oil price shocks on macroeconomic activities: an SVAR approach to the Malaysian economy and monetary responses. Energy Policy 39(12):8062–8069

    Article  Google Scholar 

  • Al-Mulali U, Sab CNBC (2013) The impact of oil shocks on China’s GDP: a time series analysis. OPEC Energy Rev 37:20–29

    Article  Google Scholar 

  • An S, Kang H (2011) Oil shocks in a DSGE model for the Korean economy. In: Ito T, Rose AK (eds) Commodity prices and markets, East Asian Seminar in Economics, vol 20, p 295–321

  • An L, Jin X, Ren X (2014) Are the macroeconomic effects of oil price shocks asymmetric? a factor-augmented vector autoregressive approach. Energy Econ 45:217–228

    Article  Google Scholar 

  • Atil A, Lahiani A, Nguyen DK (2014) Asymmetric and non-linear pass-through of crude oil prices to gasoline and natural gas prices. Energy Policy 65:567–573

    Article  Google Scholar 

  • Aziz MIA, Dhalan J (2015) Oil price shocks and macroeconomic activities in Asean-5 countries: a panel VAR approach. Eurasian J Bus Econ 8(16):101–120

    Article  Google Scholar 

  • Banerjee A, Dolado J, Mestre R (1998) Error correction mechanism tests for cointegration in a single equation framework. J Time Ser Anal 19(3):267–283

    Article  Google Scholar 

  • Barro RJ (1984) Macroeconomics. Wiley, New York

    Google Scholar 

  • Barsky R, Kilian L (2004) Oil and the macroeconomy since the 1970s. J Econ Perspect 18:115–134

    Article  Google Scholar 

  • Basher SA, Sadorsky P (2006) Oil price risk and emerging stock markets. Glob Fin J 17:224–251

    Article  Google Scholar 

  • Basnet HC, Upadhyaya KP (2015) Impact of oil price shocks on output, inflation and the real exchange rate: evidence from selected ASEAN countries. Appl Econ 47(29):3078–3091

    Article  Google Scholar 

  • Bernanke BS, Gertler M, Watson M (1997) Systematic monetary policy and the effects of oil price shocks. Brookings Paper Economic Activity 191-157

  • Bjornland HC (2009) Oil price shocks and stock market booms in an oil exporting country. Scott J Polit Econ 56:232–254

    Article  Google Scholar 

  • Bohi DR (1991) On the macroeconomic effects of oil price shocks. Resour Energy 13:145–162

    Article  Google Scholar 

  • British Petroleum (2016) British Petroleum Statistical Review of World Energy. British Petroleum Corporate Communications Services, London. https://www.bp.com/statisticalreview#BPstats. Accessed 28 Feb 2018

  • Brown SPA, Yucel MK (2002) Energy prices and aggregate economic activity: an interpretative survey. Q Rev Econ Financ 42:193–208

    Article  Google Scholar 

  • Burbidge J, Harrison A (1984) Testing for the effect of oil price rise using vector autoregressive. Int Econ Rev 25:459–484

    Article  Google Scholar 

  • Cavalcanti T, Jalles JT (2013) Macroeconomic effect of oil price shocks in Brazil and in the United States. Appl Energy 104:475–486

    Article  Google Scholar 

  • Cunado J, de Gracia FP (2005) Oil prices, economic activity and inflation: evidence for some Asian countries. Q Rev Econ Financ 45:65–83

    Article  Google Scholar 

  • Cunado J, Jo S, de Gracia FP (2015) Macroeconomic impacts of oil price shocks in Asian economies. Energy Policy 86:867–879

    Article  Google Scholar 

  • Dhawan R, Jeske K (2006) How resilient is the modern economy to energy price shocks? Econ Rev Fed Reserve Bank Atlanta 91:21–32

    Google Scholar 

  • Du L, He Y, Wei C (2010) The relationship between oil price shocks and China’s macro-economy: an empirical analysis. Energy Policy 38:4142–4151

    Article  Google Scholar 

  • Eichengreen B, Park Y, Wyplosz C (2008) China, Asia and new world economy. Oxford University Press, Oxford

    Book  Google Scholar 

  • El-Anshasy MD, Bradley AA (2012) Oil prices and the fiscal policy response in oil-exporting countries. J Policy Model 34:832–848

    Article  Google Scholar 

  • Elder J, Serletis A (2010) Oil price uncertainty. J Money Credit Bank 42(6):1137–1159

    Article  Google Scholar 

  • Ferderer JP (1996) Oil price volatility and the macroeconomy: a solution of the symmetric puzzle. J Macroecon 18:1–16

    Article  Google Scholar 

  • Frey G, Manera M (2007) Econometric models of asymmetric price transmission. J Econ Surv 21:349–415

    Article  Google Scholar 

  • Ghosh S, Kanjilal K (2014) Oil price shocks on Indian economy: evidence from Toda Yamamoto and Markov regime-switching VAR. Macroecon Finance Emerg Econ 7(1):122–139

    Google Scholar 

  • Goldstein M, Khan MS (1976) Large vs. small price changes in the demand for exports. IMF Staff Pap 23:200–225

    Article  Google Scholar 

  • Gronwald M (2016) Explosive oil prices. Energy Econ 60:1–5

    Article  Google Scholar 

  • Hamilton JD (1983) Oil and the macroeconomy since World War II. J Polit Econ 91:228–248

    Article  Google Scholar 

  • Hamilton JD (1996) This is what happened to the oil price–macroeconomy relationship. J Monet Econ 38:215–220

    Article  Google Scholar 

  • Hamilton JD (2009) Causes and consequences of the oil shock of 2007–2008. NBER working paper no. 15002

  • Hamilton JD (2011) Nonlinearities and the macroeconomic effects of oil prices. Macroecon Dyn 15(3):364–378

    Article  Google Scholar 

  • Hamilton JD, Herrera A (2004) Oil shocks and aggregate macroeconomic behavior: the role of monetary policy. J Money Credit Bank 36:265–286

    Article  Google Scholar 

  • Hooker M (1996) What happened to the oil price–macroeconomy relationship? J Monet Econ 38:195–213

    Article  Google Scholar 

  • Hsieh W (2008) Effects of oil price shocks and macroeconomic conditions on output fluctuation for Korea. J Int Glob Econ Stud 1(2):84–91

    Google Scholar 

  • Huntington G (1998) Crude oil prices and U.S. economic performance: where does the asymmetry reside? Energy J 19:107–132

    Article  Google Scholar 

  • International Monetary Fund (2012) New perspectives on Asia pole in the global economy. Inaugural Bank of Thailand Policy Forum by Christine Lagarde

  • Jalil NA, Ghani GM, Duasa J (2009) Oil price and the Malaysia economy. Int Rev Bus Res Pap 5:232–256

    Google Scholar 

  • Jin G (2008) The impact of oil price shock and exchange rate volatility on economic growth: a comparative analysis for Russia, Japan, and China. Res J Int Stud 8(11):98–111

    Google Scholar 

  • Jo S (2014) The effect of oil price uncertainty on global real economic activity. J Money Credit Bank 46(6):1113–1135

    Article  Google Scholar 

  • Kang SH, Kang SM, Yoon SM (2009) Forecasting volatility of crude oil markets. Energy Econ 31:119–125

    Article  Google Scholar 

  • Katircioglu ST, Sertoglu K, Candemir M, Mercan M (2015) Oil price movements and macroeconomic performance: evidence from twenty-six OECD countries. Renew Sustain Energy Rev 44:257–270

    Article  Google Scholar 

  • Kendall JM (2000) Measures of oil import dependence. http://www.eia.doe.gov/. Accessed 28 Feb 2018

  • Kesicki F (2010) The third oil price surge—what’s different this time? Energy Policy 38:1596–1606

    Article  Google Scholar 

  • Khan MA, Ahmed A (2014) Revisiting the macroeconomic effects of oil and food price shocks to Pakistan economy: a structural vector autoregressive (SVAR) analysis. OPEC Energy Rev 38(2):184–215

    Article  Google Scholar 

  • Kilian L (2008) Exogenous oil supply shocks: how big are they and how much do they matter for the US economy? Rev Econ Stat 90:216–240

    Article  Google Scholar 

  • Kilian L (2010) Oil price volatility: origins and effects. World trade organization staff working paper no. ERSD-2010-02

  • Lardic S, Mignon V (2008) Oil prices and economic activity: an asymmetric cointegration approach. Energy Econ 30:847–855

    Article  Google Scholar 

  • Lee K, Ni S, Ratti R (1995) Oil shocks and the macroeconomy: the role of price variability. Energy J 16(4):39–56.

    Article  Google Scholar 

  • Lee R, Lee K, Ratti R (2001) Monetary policy, oil price, and Japanese economy. Jpn World Econ 13:321–349

    Article  Google Scholar 

  • Leung GCK (2010) China’s oil use, 1990–2008. Energy Policy 38:932–944

    Article  Google Scholar 

  • Loungani P (1986) Oil price shocks and the dispersion hypothesis. Rev Econ Stud 58:536–539

    Google Scholar 

  • Makin AJ, Narayan PK, Narayan S (2014) What expenditure does Anglosphere foreign borrowing fund? J Int Money Financ 40:63–78

    Article  Google Scholar 

  • Mandal K, Battacharyya I, Bohi BB (2012) Is the oil price pass-through in India any different? J Policy Model 34:832–848

    Article  Google Scholar 

  • Mehrara M (2008) The asymmetric relationship between oil revenues and economic activities: the case of oil exporting countries. Energy Policy 36:1164–1168

    Article  Google Scholar 

  • Mitchell J (2014) Asia’s oil supply: risk and pragmatic remedies. Research paper, Chatham House. The Royal Institute of International Affairs. https://www.chathamhouse.org/sites/files/chathamhouse/field/field_document/20140506Asia’sOilSupplyMitchell.pdf. Accessed 28 Feb 2018

  • Morana C (2013) Oil price dynamics, macro-finance interactions and the role of financial speculations. J Bus Financ 37:206–226

    Google Scholar 

  • Mork KA (1989) Oil and the macroeconomy when prices go up and down: an extension of Hamilton’s results. J Polit Econ 97(3):740–744

    Article  Google Scholar 

  • Narayan PK (2005) The saving and investment nexus for China: evidence from cointegration tests. Appl Econ 37:1979–1990

    Article  Google Scholar 

  • Narayan PK, Popp S (2010) A new unit root test with two structural breaks in levels and slope in unknown time. J Appl Stat 37(9):1425–1438

    Article  Google Scholar 

  • Narayan PK, Sharma S, Poon WC, Westerlund J (2014) Do oil prices predict economic growth? new global evidence. Energy Econ 41:137–146

    Article  Google Scholar 

  • Negi P (2015) Impact of oil price on economic growth: a study of BRIC nations. Indian J Acc 47(1):144–155

    Google Scholar 

  • Nusair SA (2016) The effects of oil price shocks on the economies of the Gulf Cooperation Council Countries: nonlinear analysis. Energy Policy 91:256–267

    Article  Google Scholar 

  • Pal D, Mitra SK (2016) Asymmetric oil product pricing in India: evidence from a multiple threshold nonlinear ARDL model. Econ Model 59:314–328

    Article  Google Scholar 

  • Perron P (1989) The great crash, the oil price shock, and the unit root hypothesis. Econometrica 57:1361–1402

    Article  Google Scholar 

  • Pesaran HM, Shin Y, Smith R (2001) Bound testing approaches to the analysis of level relationship. J Appl Econ 16:289–326

    Article  Google Scholar 

  • Rafiq S, Sgro P, Apergis N (2016) Asymmetric oil shocks and external balances of major oil exporting and importing countries. Energy Econ 56:42–50

    Article  Google Scholar 

  • Rahman S, Serletis A (2012) Oil price uncertainty and the Canadian economy: evidence from a VARMA, GARCH-in-mean, asymmetric BEKK model. Energy Econ 34:603–610

    Article  Google Scholar 

  • Ran J, Voon JP (2012) Does oil price shock affect small open economies? evidence from Hong Kong, Singapore, South Korea and Taiwan. Appl Econ Lett 19:1599–1602

    Article  Google Scholar 

  • Ran J, Voon JP, Li G (2010) How do oil price shocks affect a small non-oil producing economy? evidence from Hong Kong. Pac Econ Rev 15(2):263–280

    Article  Google Scholar 

  • Rasche RH, Tatom JA (1977) The effects of the new energy regime on economic capacity, production and prices. Econ Rev Fed Reserve Bank St Louis 59:2–12

    Google Scholar 

  • Schorderet Y (2003) Asymmetric cointegration. Working paper no. 2003-01, Department of Econometrics, University of Geneva

  • Shah IH, Wang Y (2012) Revisiting the dynamic effects of oil price shock on small developing economies. Working paper no. 12/626, Department of Economics, University of Bristol, UK

  • Shin Y, Yu B, Greenwood-Nimmo M (2011) Modelling asymmetric cointegration and dynamic multipliers in a non-linear ARDL framework. Mimeo

  • Shin Y, Yu B, Greenwood-Nimmo M (2014) Modelling asymmetric cointegration and dynamic multipliers in a non-linear ARDL framework. In: Horrace WC, Sickles RC (eds) Festschrift in honour of Peter Schmidt: econometric methods and applications. Springer, New York, pp 281–314

    Chapter  Google Scholar 

  • Tang CF, Tan EC (2013) Exploring the nexus of electricity consumption, economic growth, energy prices and technology innovation in Malaysia. Appl Energy 104:297–305

    Article  Google Scholar 

  • Tange W, Wu L, Zhang ZX (2010) Oil price shocks and their short- and long-term effects on the Chinese economy. Energy Econ 32:S3–S14

    Article  Google Scholar 

  • Toda HY, Phillips PCB (1993) Vector autoregressions and causality. Econometrica 61:1367–1393

    Article  Google Scholar 

  • Vogelsang TJ, Perron P (1998) Additional test for unit root allowing for a break in the trend function at an unknown time. Int Econ Rev 39:1073–1100

    Article  Google Scholar 

  • Vu TK, Nakata H (2014) The Macroeconomic effects of oil price fluctuations in ASEAN countries: analysis using a VAR with block exogeneity. Discussion paper series A, No. 619, Institute of Economic Research, Hitotsubashi University, Kunitachi, Tokyo, 186-8603, Japan

  • Wang Y, Wu C, Yang L (2013) Oil price shocks and stock market activities: evidence from oil-importing and oil-exporting countries. J Comp Econ 41(4):1220–1239

    Article  Google Scholar 

  • Wei Y, Guo X (2016) An empirical analysis of the relationship between oil prices and the Chinese macroeconomy. Energy Econ 56:149–156

    Article  Google Scholar 

  • Westerlund J, Narayan P (2013) Testing the efficient market hypothesis in conditionally heteroskedastic futures markets. J Future Mark 33:1024–1045

    Article  Google Scholar 

  • World Energy Outlook (2015) Fossil fuel subsidies database. www.worldenergyoutlook.org/media/weowebsite/2015/Subsidies20122014.xlsx

  • Yeh FY, Hu JL, Lin CH (2012) Asymmetric impacts of international energy shocks on macroeconomic activities. Energy Policy 44:10–22

    Article  Google Scholar 

  • Zhang D (2008) Oil shock and economic growth in Japan: a nonlinear approach. Energy Econ 30:2374–2390

    Article  Google Scholar 

  • Zhang YJ, Fan Y, Tsai HT, Wei YM (2008) Spillover effect of US dollar exchange rate on oil prices. J Policy Model 30:973–991

    Article  Google Scholar 

  • Zhao L, Zhang X, Wang S, Xu S (2016) The effect of oil price shocks on output and inflation in China. Energy Econ 53:101–110

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Management Sciences, COMSATS Institute of Information Technology, Park Road, Chak Shahzad, Islamabad, Pakistan

    Muhammad Arshad Khan, Muhammad Iftikhar Ul Husnain & Qaisar Abbas

  2. Warwick Business School, University of Warwick, Coventry, UK

    Syed Zulfiqar Ali Shah

Authors
  1. Muhammad Arshad Khan
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Muhammad Iftikhar Ul Husnain
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Qaisar Abbas
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Syed Zulfiqar Ali Shah
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Muhammad Arshad Khan.

Appendix

Appendix

See Table 5.

Table 5 Unit root tests
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Khan, M.A., Husnain, M.I.U., Abbas, Q. et al. Asymmetric effects of oil price shocks on Asian economies: a nonlinear analysis. Empir Econ 57, 1319–1350 (2019). https://doi.org/10.1007/s00181-018-1487-7

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00181-018-1487-7

Keywords

JEL Classification

Search

Navigation