Analysis oF the impact of Oil Prices on exchange rates, stock market returns and economic growths of Brazil, China and India

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TABLE OF CONTENTS

CHAPTER THREE: METHODOLOGY1

Research Overview1

Model11

CHAPTER FOUR: ANALYSIS AND DISCUSSION13

VAR/VECM framework13

Cyclical Components14

Data Description15

Cointegration and VECM approach15

VAR approach: Preliminary results19

VAR Results22

Data Analysis25

Impact of Oil Prices on GDP of Brazil25

Impact of Oil Prices on GDP of China26

Impact of Oil Prices on GDP of India28

CHAPTER FIVE: CONCLUSION, SUGGESTIONS AND RECOMMENDATIONS36

APPENDIX39

Oil Consumption in Million Barrels per day39

Oil Reserves in Million barrels40

Historical Crude oil Prices in US dollar41

Annual GDP by country42

Regression Analysis results43

Impact of Oil Prices on GDP of Brazil43

Impact of Oil Prices on GDP of China44

Impact of Oil Prices on GDP of India45

CHAPTER THREE: METHODOLOGY

This chapter will provide the research method used for conducting this research study. For the purpose of this dissertation, secondary research method was used. This research is founded on the secondary data. The Regression analysis has been performed for analysing the impact of the fluctuations in oil prices on GDP of a nation. The Regression analysis has been performed on the oil prices and the annual GDP of the Brazil, China and India, in order to get know about the impact of fluctuations in oil prices on the economic growth. The variables that have been chosen for the analysis of the impact of fluctuations in oil prices on the economic growth of the country are the oil prices and the annual GDP of the Brazil, China and India.

Research Overview

Oil is one of the key components in determining the economical and financial growth of an oil importing nation. Any upward movement in the price of oil can change a country's balance sheet drastically as they increase the percentage of revenue a country spends on the oil imports.

During the last decade, crude oil prices have drawn lot of attention across the world; a sharp change in the price of oil in upward direction can cause inflation, slow down economic growth of a net importing nation while it has an opposite effect on a net exporting nation (Al-Naimi 2011, 48). As a difference from other commodities oil is probably one of the few or the only production input that can affect both positively and negatively economic growth, to an extent that it might even lead to a recession (Al-Naimi 2011, 48). Oil price volatility dampens growth through different channels, from an increase in production cost to inflation expectations.

For most developing countries oil accounts for a large proportion of gross domestic product expenditures in energy production. According to the IEA, oil accounted for 40% of the global energy needed in 2000. Significant increases in energy prices will lead to a considerable rise in production and transportation cost for many industries and hence drives wages and inflation upwards, which at the same time will dampen economic growth. According to Awerbuch (2003) inexpensive oil is crucial for the world's demand for energy but its availability is scarce, therefore volatility in supply will have substantial economic impact. That volatility in supply can be translated into “Peak oil” ...