The Relationship between Industrial Production, GDP, Inflation and Oil Price: The Case of Turkey

After the oil shock in 1973, the number of studies on causal relationship between oil price and macroeconomic variables has dramatically increased. This paper investigates the relationship among the oil price, inflation, GDP and industrial production for 1961 to 2012 period in the case of Turkey. Data used in the study was extracted from World Bank Development Indicators and the OPEC. Three different tests, namely unit root, co-integration and causality tests, have been employed to investigate the relationship among the variables. The results of Phillips-Perron (PP) as a unit root test suggests that all the variables under investigation are integrated of order one; I(1). Johansen co-integration results confirm a long-run relationship among these variables and Granger causality test illustrates the unidirectional relationship from oil price to industrial production.