Testing for Energy Market Integration in China

39 Pages Posted: 16 Apr 2009

See all articles by Hengyun Ma

Hengyun Ma

Massey University - Applied and International Economics; Henan Agricultural University

Les Oxley

University of Waikato - Department of Economics and Finance; University of Waikato

John Gibson

University of Waikato; Motu Economic and Public Policy Research

Date Written: March 1, 2009

Abstract

This paper investigates energy market integration in China by employing univariate, and panel-based unit root tests and Granger causality tests applied to a new energy price data set. We identify price series that converge either to absolute or relative price parity. In addition we estimate the rates (speed) at which relative prices converge to their long-run values, and the direction of causality. The results show that gasoline and diesel markets are very well integrated as a whole; and that once some geographically isolated regions are excluded, we can regard the coal market as integrated; however, the electricity market is not well integrated. The estimated intercept terms are all very small and close to zero, such that most of the relative price series can be regarded as convergent to absolute price parity. The convergence rates vary little and are relatively short when compared internationally. A rich set of causal relationships are established many showing bi-directional causality between regional centres.

Keywords: China; Energy, Market integration, Price convergence, Time series tests

JEL Classification: D24, O33, Q41

Suggested Citation

Ma, Hengyun and Oxley, Les and Gibson, John, Testing for Energy Market Integration in China (March 1, 2009). Motu Working Paper No. 09-03, Massey U. College of Business Research Paper No. 3, Available at SSRN: https://ssrn.com/abstract=1386042 or http://dx.doi.org/10.2139/ssrn.1386042

Hengyun Ma (Contact Author)

Massey University - Applied and International Economics ( email )

Private Bag 11 222
Massey University
Palmerston North, 4442
New Zealand

Henan Agricultural University

Zhengzhou
China

Les Oxley

University of Waikato - Department of Economics and Finance ( email )

Private Bag 3105
Hamilton, 3105
New Zealand

University of Waikato ( email )

Hamilton
New Zealand

John Gibson

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, Waikato 3240
New Zealand

Motu Economic and Public Policy Research

19 Milne Terrace
Island Bay
Wellington, 6002
New Zealand

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