The interactions between Chinese local corn and WTI crude oil prices: an empirical analysis

Abstract

Abstract This paper investigates the relationship between China’s fuel ethanol promotion plan and food security based on the interactions between the crude oil market, the fuel ethanol market and the grain market. Based on the US West Texas Intermediate (WTI) crude oil spot price and Chinese corn prices from January 2008 to May 2018, this paper applies Granger causality testing and a generalized impulse response function to explore the relationship between world crude oil prices and Chinese corn prices. The results show that crude oil prices are not the Granger cause of China’s corn prices, but changes in world crude oil prices will have a long-term positive impact on Chinese corn prices. Therefore, the Chinese government should pay attention to changes in crude oil prices when promoting fuel ethanol. Considering the conduction effect between fuel ethanol and the food market, the government should also take some measures to ensure food security.

Keywords

• WTI crude oil spot price
• Chinese corn price
• Granger causality test
• Impulse response analysis