Relationship between Financial Crisis and Oil Shock and its Effect on East-West Asia Trade Flows

The objective of this paper is to explore the role of global financial crises in creating oil price shock affecting both importing and exporting countries of East and West Asia over 1980-2008. It also investigates the oil shock effect on trade relations among these countries during the period. Accordingly, we specify a demand export model including particularly two control variables of oil price shock and financial classes. The specified export model is estimated dynamically by a version of the Autoregressive Distributed Lag approach (ARDL) through using macroeconomic data of the Asian economies. The results obtained by this method are used to analyze for both long-run and short-run. Overall, the empirical results indicate that financial crisis and oil price have a significant interacted effect on trade flows ofthe Asian exporting countries in the short-run, while it is not applicable in the long-run. The implication is that financial crisis and oil shocks are two different incidents that occur separately and do not essentially affect each other.