Abstract

The industrialization levels of the countries are an indicator of development. Countries trying to increase their production in the industrial sector prefer to have access to energy in a cheap and easy way. However, economies that do not have sufficient energy reserves may be affected by the changes in energy prices since they will import the necessary energy input. Although there are many studies discussing the effects of energy or oil prices on macroeconomic variables in countries, the research based on industrial production is limited. In this study, the long-term relationship between the changes in oil prices and industrial production in the ten most oil-importing countries (China, Germany, India, Italy, Japan, Netherlands, South Korea, Spain, United Kingdom and United States) was analyzed by Pedroni, Kao and Johansen Fisher cointegration tests. According to the empirical findings of the study, it is concluded that the relationship between the industrial production of oil importing countries and oil prices is positive. This situation can be interpreted as these countries with high levels of industrialization process the crude oil and market the products they produce to foreign countries more profitably.

Highlights

  • In order to ensure development, competing economies in the global world try to provide production and employment structure through industry and service sectors instead of agriculture

  • Cuñado and de Gracia (2003) applied a cointegration test that allows structural breakage in a study in which they analyzed the impact of oil price shocks on industrial production and consumer price indices for 14 European countries, and made different transformations to oil price data to take into account the possible nonlinear relationship

  • Industrial production index (IPI) data used in the analysis were obtained from IFS (International Financial Statistics) database and crude oil prices (Olip) data were obtained from EIA

Read more

Summary

INTRODUCTION

In order to ensure development, competing economies in the global world try to provide production and employment structure through industry and service sectors instead of agriculture. The main reason for this is that crude oil is one of the most important energy sources for all economies, regardless of industrialized or developing countries. As it is an important input, the course of crude oil prices is closely monitored. Cobo-Reyes and Quiros (2005) investigated the relationship between oil price shocks and industrial production, industrial production and stock returns, and concluded that the increase in oil prices negatively and significantly affected industrial production and stock returns This increase had a greater effect on stock returns than industrial production. Cuñado and de Gracia (2005) revealed that there is no long-term cointegration between oil price and industrial production in Asian countries, its effect is limited in the short term, and that oil price shocks are the Granger cause of output. Jiménez-Rodríguez and Sánchez (2005), as a result of their analysis, revealed that oil price shocks in Japan caused a decrease in industrial production and an increase in inflation, and the relationship between them was not linear

LITERATURE REVIEW
ECONOMETRIC METHOD
RESULTS
CONCLUSION

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.