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Is the demand for crude oil inelastic for India? Evidence from structural VAR analysis

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  • Dash, Devi Prasad
  • Sethi, Narayan
  • Bal, Debi Prasad

Abstract

We examine the dynamics of crude oil demand, crude oil price, and economic growth over the period of 1997–2016 in case of India. We derive the results from DNS unit root test and it indicates that all variables are stationary in their first order difference. Further, we apply Narayan and Popp (2010) two structure break test and find two break points, one in January 2002 and another one in November 2011 in case of crude oil price. Finally, the Structural VAR analysis depicts that there exists a negative and significant relation between crude oil price dummy and crude oil demand over the period. Further, the price elasticity shows that the percentage changes of crude oil demand response less as compare to the rise in crude oil price. This clearly suggests that crude oil price is moderately inelastic. This overall implies that global crude oil price fluctuation has not brought down India's crude oil import to a greater extent. In order to erase the bulging oil import bill, alternative strategies of producing methanol blended oil, revival of sick oil well production, and adoption of phase wise clean energy system could curb the import dependence of crude oil.

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  • Dash, Devi Prasad & Sethi, Narayan & Bal, Debi Prasad, 2018. "Is the demand for crude oil inelastic for India? Evidence from structural VAR analysis," Energy Policy, Elsevier, vol. 118(C), pages 552-558.
    • Handle: RePEc:eee:enepol:v:118:y:2018:i:c:p:552-558
    DOI: 10.1016/j.enpol.2018.04.001
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    14. Debi P Bal & Badri N Rath, 2019. "Nonlinear causality between crude oil price and exchange rate: A comparative study of China and India - A Reassessment," Economics Bulletin, AccessEcon, vol. 39(1), pages 592-604.
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    More about this item

    Keywords

    Q41; Q43; C32; Crude oil demand; Crude oil price; Economic growth; Structural VAR;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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