Coal Price Fluctuations And Their Impact On Regional Economic Development

The financial crisis, triggered by The U.S. subprime mortgage crisis on the second half of 2008, impacted the economic growth of most provinces in chin. Among them, the economy of Shanxi Province that supported by the extraction and development of coal resources confronted a severe downturn, and became the only province that had a negative economic growth in the first quarter of 2009. As a resource-based province, the economic fluctuation of Shanxi was significantly higher than other non-resource-based provinces. The main reason is: the cyclical changes in economy led to the greater volatility of coal prices than of ordinary products, which will inevitably contribute to the volatilitized development of the resource-based region that regards the coal industry as its pillar industry. Why could the coal price be volatilized, and how does it affect the development of regional economy? Research on these issues has become one of the hot-points that attract the attention of scholars in recent years.Based on the general-view of the literatures, this article attempts to start with the factors influence the fluctuations of coal price, that is, formation mechanism of coal price, elasticity of supply and demand, industry organization, psychological expectations, and international uncertainties, and conduct economic analysis of its impacts on the regional economic development; meanwhile, take the coal-rich province Shanxi for example, and empirically analyze the fluctuation of coal price and its the impacts on the economic development of Shanxi, with proposing relevant policy recommendations. This article would Theoretically complement the correlated theories such as energy prices, growth of resource-based regional economic, and realistically be available for reference that prevent the impact on the regional economy of Shanxi Province caused by fluctuations in coal prices.This article would achieve conclusions as follows.(1) As the resource reserves and production cycle constraints, when the economy is on an upward trend and lead to the increases of coal demand, the expansion of production scale gets difficult in the short period of time for the coal-mining enterprises; since local economic protection of the government in the coal-extracting areas, the output of coal could be properly controlled and the coal supply would not be correspondingly changed, that is, the price elasticity of coal supply is low; meanwhile, because of the psychological expectations, ie. estimates have been done that the there will be a further increase in coal prices, the coal-mining companies then will stock the coal for selling when the prices get high. Such kind of behavior leads to the further rise of coal prices and the rates are always higher than the ordinary products. When the economic development is in decline and leading to reduce the demand of coal, due to the strong Asset Specificity of coal industry, high exit barriers, and less enterprises of the coal industry, resulting in a further drop in coal prices, and the rates the rates are always higher than the ordinary products.(2)Fluctuations of coal prices influence the sustained development of the coal-dependent regions'economy, causing a large fluctuation in regional economic growth, the phenomenon of anti-industrialization, income disparities and other social problems. Fluctuations of coal prices reduce the competitiveness of the industry, and lead to disorderly competition in some coal- mining companies; when coal prices go up, it will exacerbate the phenomenon of anti-industrialization in coal-development areas, when coal prices go down, it will bring locking effect; and fluctuations of coal prices might increase the damage of ecological environment, widening income gap and leading to a series of social problems.(3) The empirical analysis of the coal-rich Shanxi Province verifies the theoretical hypothesis above: Coal price volatility in Shanxi is larger than the fluctuations of the ordinary commodity; the coal price of supply and demand is price inelastic; coal prices have stable relationship between GDP in Shanxi Province in the long-term and with the same direction of change, meanwhile, the changes in coal prices in Shanxi revenue relationship are obvious; oal prices in Shanxi Province brings the phenomenon of anti-industrialization; coal price increases lead to safety problems; coal prices will result in income gap to some extent.