The Relationship of Oil Prices and Economic Growthin Tunisia: A Vector Error Correction Model Analysis

This paper seeks to investigate the causal relationship between oil prices and economic growth in Tunisia over a period from 1960 to 2009. 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. Tunisian is not oil producing rather oil-importing country. An increase in oil price decrease economic growth. The rising oil prices are the major concern for all the developing economies and Tunisian is suffering from it too. The increase in oil price has further effect the daily consumption pattern of households badly. This study analyzes that, how change in real crude oil price effects the real GDP of Tunisia negatively and many other factors differently. The results show that both series are integrated of order one (I(1)), the existence of a long-term relationship between energy prices and economic growth and Granger pairwise causality test revealed unidirectional causality from real GDP to oil prices.