Assessing the impact of China net imports on the world cotton price

Abstract

China is the first cotton producer and importer in the world. This article investigates the impact its net imports have on the world cotton price. Using annual data from 1976 to 2009, the results show a strong positive and significant impact both in the short and in the long run. These findings are important as it helps policy makers and forecasters to improve the quality of their models. This work could also be extended to other commodity markets as China becomes a major player in the world economy.

Keywords:

• world cotton price
• China net imports

JEL Classification:

• Q17
• C22

Notes

¹ We define net imports as imports – exports.

² We have also run a CUMSUM squared test as well as a recursive residual test which both yield the same results as the Chow forecast test. These results are available upon request. Finally, we have run a state space model of the form:

and the final coefficient for China net trade was 0.941.

³ The variable is scaled to represent hundreds of thousands of 480-pound bales. Since there are a lot of negative values, we have not used a log–log specification.

⁴ SE in brackets.