Impacts of oil price on Vietnam's economic activities
Abstract
Oil is a vital energy source in the world and play an important role in any
countries. The relationship between oil price and economic growth has occupied many
attentions of many economists. This study objective is to examine the effects of oil price
on Vietnam’s economy using Johansen-Juselius cointegration technique and Vector Error
Correction Model (VECM). Monthly data used in the paper includes oil price, CPI, IIP
(Index of Industrial Production), nominal exchange rate and trade balance from January
2008 to March 2015. All of five series data were transformed into logarithm form. The
result in cointegration test indicates the long-run relationship between oil price, IIP, CPI,
exchange rate and trade balance. Though oil price has positive impact on Vietnam’s
economy in long term, its impact is not substantial. Otherwise, CPI and exchange rate
have much stronger impact on Vietnam economy than oil price. The result suggests that
moderate inflation rate and appreciation in exchange rate could actually boost up rather
than harm the economy. In the short run, oil price does not cause any effect on Vietnam
economic activities. It only has minor impact on CPI with 0.02 percent increase in CPI
for each percent rise in oil price if others hold constant. Variance Decomposition
technique and Impulse Response Functions had also been conducted to gain a further
understanding about the relationship between the variables. Based on the result, some
conclusions and recommendations was suggested.