Influence of Crude Oil Price Shock on Economic Growth: Evidence from India

Abstract

Fluctuation in oil price is criteria in the worldwide economy which is posing a great challenge to researchers and policy makers studying the stochastic nature of macro -economic dynamics. This research endeavour tries to analyze the influence of oil price change either domestic oil price or international oil price on economic growth in India for the period from February,1990 to March,2015.Result suggests that international crude oil price increase has significant negative impact on economic growth of India which is at par our expectation and  crude domestic oil price increase has unexpectedly significant positive impact on economic growth of India which is contrary to our expectation. Our long run analysis suggests that variables in the series are cointegrated and exhibits a stable long-run equilibrium relationship. There exist unidirectional causality  between growth in GDP(GDP) and international oil  price (IOIL), growth in GDP(GDP) ,domestic oil price(DOIL).The causality runs from international oil  price (IOIL)  to growth in GDP, domestic oil price(DOIL)to growth in GDP respectively. This means that international oil price as well as domestic oil price granger causes economic growth but not vice versa so far as our study period and results are concerned.

Keywords: Oil price, economic growth, India, causality, cointegration.

JEL-C58, Q32, Q43, G00.