Asymmetric responses of industrial output to oil price volatility: A GARCH approach in East Asia-Pacific developing countries

Crude oil represents a vital energy source essential for sustaining economic manufacturing activity and growth. Energy reliability is an absolute requirement for economic growth and development to occur. Widespread transmission across the economy becomes more complicated and nonlinear because of both business cycle patterns and policy changes. This study examines the asymmetric responses of industrial output to oil price volatility in East Asia-Pacific developing countries. The research utilizes monthly data from January 1997 to December 2024 on Brent oil prices and industrial production in these countries. It employs DCC and CDCC-GARCH models for symmetric analysis, while advanced asymmetric GARCH models (GJR-GARCH, FIEGARCH, HYGARCH) are used to detect asymmetric relationships. The results reveal significant differences in the effects of positive versus negative oil price shocks on industrial output growth. Symmetric GARCH models show weak correlations between oil price volatility and output, whereas asymmetric GARCH models uncover significant nonlinear and asymmetric relationships. The findings indicate that industrial output in East Asia-Pacific developing economies responds more strongly to oil price increases than decreases. The study concludes that the relationship between oil price volatility and industrial output growth is asymmetric, characterized by persistent and clustered volatility patterns. Furthermore, asymmetric GARCH models significantly outperform their symmetric counterparts in capturing these dynamics.