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Is crude oil price detrimental to domestic private investment for an emerging economy? The role of public sector investment and financial sector development in an era of globalization

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  • Mallick, Hrushikesh
  • Mahalik, Mantu Kumar
  • Sahoo, Manoranjan

Abstract

Using annual data for the period 1980-2014, this study attempts to examine the impact of the international price of crude oil on private investment in India by endogenizing public sector investment, real interest rate, financial sector development, economic growth and economic globalization as other additional key determinants in a private investment model. This framework also serves as additional objective of verifying whether public sector investment crowds out or crowds in private investment in India and whether real interest rate as a monetary policy channel variable is effective in influencing the private investment. From our empirical estimation, we observed that crude oil price, public investment, and real interest rate have detrimental effects on the growth of domestic private investment, whereas financial sector development, economic growth, and globalization help to boost up private investment. From a policy perspective, the study suggests that India should intensively shift its focus towards both the production and consumption of renewable energies and tap other alternative potential sources of energy in order to offset the risks arising on account of India's heavy reliance on imports of crude oil from other oil exporting countries. This study further urges that the role of international crude oil price, public sector investment, and real interest rate can't be under-emphasized while designing a comprehensive growth-oriented energy policy strategy for India in order to achieve a sustainable economic development of the economy.

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  • Mallick, Hrushikesh & Mahalik, Mantu Kumar & Sahoo, Manoranjan, 2018. "Is crude oil price detrimental to domestic private investment for an emerging economy? The role of public sector investment and financial sector development in an era of globalization," Energy Economics, Elsevier, vol. 69(C), pages 307-324.
    • Handle: RePEc:eee:eneeco:v:69:y:2018:i:c:p:307-324
    DOI: 10.1016/j.eneco.2017.12.008
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    Keywords

    Oil price; Private investment; Public investment; Interest rate; Bayer-Hanck cointegration; DOLS;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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