Unraveling the causal impact: Oil price uncertainty on firms’ productivity in China

This study examines the impact of oil price uncertainty on firms’ productivity (measured by TFP). Using Chinese listed companies data over the period 2007Q1–2021Q4, we estimate a fixed-effect model and reveal that a rise in oil price uncertainty leads to a decrease in firms’ TFP, which is largely unaffected by a battery of robustness checks and endogeneity concerns. The analysis of economic mechanisms shows that oil price uncertainty impacts firms’ TFP mainly by discouraging productivity-enhancing investments, such as human capital investment and R&D spending. Notably, we uncover evidence that the impeding effect of oil price uncertainty is not homogeneous across the cross-section, particularly pronounced in firms with higher energy intensity, investment irreversibility, and external financial dependence. Overall, our study supports the notion that oil price uncertainty is also an important factor shaping firms’ productivity and provides more micro-level evidence for the research on the oil-firm relation.