Steel consumption and economic growth: Evidence from India

This paper examines cointegration and Granger causality between steel consumption and economic growth in India for the time span of 1951-1952 to 2003-2004 in a bivariate vector autoregression format. Augmented Dickey Fuller tests reveal that both series, after logarithmic transformation, are non-stationary and individually integrated of order one. This study finds the absence of cointegration but the existence of unidirectional Granger causality running from economic growth to steel consumption. Thus, a growth in income is found to be responsible for a higher level of steel consumption. The impulse response function divulges that GDP growth does not seem to be responsive due to a shock in steel consumption growth. Finally, this study forecasts steel demand in India till 2011-2012 and highlights the preparedness of the Indian steel industry along with required policy prescriptions to meet this demand. (c) 2006 Elsevier Ltd. All rights reserved.