Is Cointegration between Oil Price and Economic Growth? Case Study Iran

AbstractThis paper seeks to investigate the causal relationship between oil prices and economic growth in Iran over a period from 1980 to 2010. The empirical analysis starts by analyzing the time series properties of the data which is followed by examining the nature of causality among the variables. Iran is oil producing rather oil-importing country. Contrary to the results of some previous studies, our results show that oil price is not Granger-causes for economic growth. Results show that neutral effect of oil price on economic growth as such the significance for error-correction term is not statistically supported. Given the natural effect of oil prices on economic growth and the fact that Iran has adopted economic growth targeting as its policy anchor, we recommend tha t monetary policies should be relaxed during the global oil price shocks in order to protect the country from any possible outcome of a full-blown stagflation scenario. Our results apply irrespective of whether the causality is estimated in the short-run or in the long-run