National energy market integration: a study of energy price convergence in China

Abstract

This paper provides new empirical evidence on exploring price convergence for key energy products, such as gasoline, diesel, coal and natural gas, across different regions in China. Using a novel dataset spanning the period 2006 to 2012 along with a non-linear panel unit root test that is series specific, the paper makes a contribution to the literature on energy price convergence. It is not only the most recent study undertaken within the price convergence literature for the Chinese energy markets, but it is also the most comprehensive in terms of city coverage, and highly unique in terms of being capable of capturing the effects of energy reforms initiated back in 2006. The empirical results document weak evidence of price convergence, indicating that China�s domestic energy markets are not well integrated across the country�s cities, while there was greater price convergence in the cases of gasoline and diesel markets. The paper, by augmenting the general marketisation index ranking, also provided evidence of low association between energy marketisation and general marketisation across numerous provinces. The results are expected to have significant implications, mostly for local policy makers in the aftermath of serious energy policy reforms initiated in 2006.