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The dual shocks of the COVID-19 and the oil price collapse: A spark or a setback for the circular economy?
Journal article   Peer reviewed

The dual shocks of the COVID-19 and the oil price collapse: A spark or a setback for the circular economy?

Refk Selmi, Shawkat Hammoudeh, Kamal Kasmaoui, Ricardo M. Sousa and Youssef Errami
Energy economics, v 109, 105913
May 2022
DOI: https://doi.org/10.1016/j.eneco.2022.105913
Featured in Collection :   UN Sustainable Development Goals @ Drexel

Abstract

Abnormal return COVID-19 Diversification Dynamic correlation analysis Oil price shock Plastic and recycled plastic prices
Is the COVID-19-induced unprecedented plunge in oil demand good news for the nascent circular economy in a material made from oil (i.e., the recycled plastics)? Since the plunge of oil prices, recycled plastics have become more expensive than virgin plastics, potentially encouraging manufacturers to shift away from the former to the latter. Our study primarily attempts to address whether recycled plastics will survive the tanked oil prices and COVID-19. To this end, we assess how the dual shocks of COVID-19 and the associated oil price collapse affect: (i) the dynamic co-movements between the international crude oil prices and the plastic and recycled plastic prices, and (ii) the responses of virgin plastics and recycled plastics in terms of diversification opportunities. Using different empirical methodologies (i.e., the event study methodology to assess changes in prices beyond expectations, the optimal hedge ratio, the portfolio weight, and copula-based approaches), the findings robustly suggest that with the rising uncertainty over COVID-19, the oil market and the performance of virgin plastic manufacturers are still significantly and positively connected, although a negative dependence with the recycled plastics is shown. With the onslaught of the coronavirus pandemic, the inclusion of virgin plastics in a portfolio composed of oil only improves the reward-to-risk ratios. These results have relevant implications for risk management and policy design. [Display omitted] •We assess the COVID-19-induced pace of the global circular transition for plastics.•We test the virgin and recycled plastics risk flow to the pandemic and oil slump.•We gauge portfolio diversification and hedging gains linked to both plastics types.•We study the dynamic links between the oil and plastics prices due to the COVID-19.•The twin shocks are adverse to recycling plastics and threaten circularity.

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9 Record Views
19 citations in Web of Science
18 citations in Scopus

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Collaboration types
Domestic collaboration
International collaboration
Web of Science research areas
Economics
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