ON THE CURRENT ACCOUNT - BIOFUELS LINK IN EMERGING AND DEVELOPING COUNTRIES: DO OIL PRICE FLUCTUATIONS MATTER?

摘要

OverviewFor the past two decades, a strong interest has emerged in favor of the integration of renewable energies in theelectricity mix and in the transportation sector. This constitutes a major concern for developed economies as well asfor developing and emerging countries in order to ensure energy transition policies, to fight against climate changeand reduce Greenhouse Gas Emissions (GHG). Along these lines, the use of biofuels is encouraged in developedcountries and in emerging economies such as Brazil, China and India for environmental concerns, as well as forpromoting energy security, agricultural opportunities and economic growth. For instance, the European Unionintroduced a blending target of biofuels in petroleum products in 2003 and the Renewable Fuel Standard program(2005) combined with the Energy Independence and Security act of 2007 (36 billion gallons of biofuels by 2020)allowed the establishment of mandatory target of biofuels utilization in the United States' transportation sector.However, such environmental policies may cause externalities or adverse effects on the economy of emerging anddeveloping countries whose activity is highly dependent on agricultural commodities used in biofuel production.Aiming at investigating those issues, this article analyzes the price impact of biofuels on the economy of suchcountries, focusing on the current account consequences. By concentrating on the current account, we fall into thespirit of the oil-macroeconomy literature. Indeed, it is well known that oil-exporting countries experiment largecurrent account improvements following a sharp rise in oil prices (see Allegret, Couharde, Coulibaly, and Mignon(2014) and the references therein). In other words, for such countries, oil windfalls constitute a key source of foreignexchange and income. The price of oil is also a key element behind agricultural commodity prices (see Paris (2018)and the references therein). Shocks in the price of oil spill over agricultural production costs which comprisefertilizer and fuel, thus decreasing supply. On the consumer side, the impact can be either negative or positive. Onthe one hand, positive shocks in the price of oil have a negative impact on demand if in their food purchasingdecisions, households account for price changes in other goods among those oil products. In this case, oil andagricultural commodity prices would have a negative relationship. On the other hand, a positive link betweenagricultural commodity demand and oil prices is likely to occur through the development of biofuels: due to thesubstitution effect between fuel and biofuel, a rise in the price of oil could lead to an increase in the demand forbiofuel. In this context, oil and agricultural commodity prices would be positively related.The preceding argumentsshow that important links exist between the price of agricultural raw materials used in biofuel production, the priceof oil and the current account of emerging and developing countries exporting or importing agriculturalcommodities. While the impacts caused by biofuel production development are likely to be highly significant on theeconomy of such countries, the literature on this topic is very scarce.MethodsFor our estimations, we rely on annual data over the 2000-2014 period. The choice of the starting date, 2000, isguided by data availability considerations. Indeed, we calculate a biofuel feedstock price index (hereafter biofuelprice) based on information provided by the reports of the US Department of Agriculture (USDA), which date backonly from 2000. The dependent variable is the current account to GDP ratio, extracted from WDI (WorldDevelopment Indicators, World Bank). Turning to the explanatory and control variables, we consider usual currentaccountdeterminants in addition to the biofuel price. As stressed above, we acknowledge that this current account -biofuel price relationship may vary depending on the price of oil. The latter is defined as the simple average (inlogarithm) of Dated Brent, West Texas Intermediate and the Dubai Fateh spot prices, and is extracted from IMF(International Financial Statistics, IFS). Acknowledging this major role played by the price of oil, we account fornonlinearities by estimating a panel smooth-transition regression (PSTR) model, proposed by Gonzalez, Terasvirta,and van Dijk (2005), for a panel of 16 countries – 9 developing and 7 emerging economies – which are eitherexporters, producers or importers of agricultural commodities used in biofuel production. In this type of modeling,the price impact of biofuels on the current account varies, depending on the value of another observable variable,i.e., the price of oil. Specifically, the observations in the panel are divided into two homogeneous groups or“regimes” – high oil price and low oil price regimes –, with different coefficients depending on the regimes.ResultsThe null of linearity is rejected in favor of the alternative of logistic PSTR specification for all panels exceptimporting countries. The latter result regarding importers may be related to the policies implemented in some ofthose importing economies (China, India, and Indonesia for example) in order to protect domestic market frominflation pressures. These measures could have limited the current-account deterioration with the reduction ofinternational price pressures in the domestic market, thus explaining the absence of nonlinearities on the biofuelprice impact on the current account in importing countries. For other panels, our findings show that a rise in thebiofuel feedstock price index tends to improve the current-account position for agricultural commodity-producingand -exporting countries. However, this impact is nonlinear, depending on the level reached by the price of oil.Specifically, we find that for low values of the price of oil—i.e., below 60 US dollars per barrel for our whole panelof countries—, a 10% increase in the price of biofuels leads to a significant current-account improvement of about2%. When the price of oil increases to exceed 56 US dollars per barrel for producers and 45 US dollars forexporters, the effect of fluctuations in the price of biofuels on the current account tends to decrease until becomingnon significant. For commodity exporters which are also oil importers, these findings illustrate that, when the priceof oil increases, the current account is pulled by two opposite forces, making its overall reaction moderate or evennil.ConclusionsOn the whole, our findings put forward the importance of accounting for the effect of the price of oil in designingpolicies to promote the use of biofuels. In particular, while an increase in the biofuel price is benefit for commodityexportingcountries in a low oil price regime, it is no more the case in high oil price states. With regard to the "foodversus fuel" debate, sharp increase in the price of biofuels coupled with strong rise in the price of oil are likely toexert important detrimental effects on the economy of agricultural commodity-exporting countries.