High speed diesel consumption and economic growth in India

This study probes the long-term equilibrium relationship among High Speed Diesel (HSD) consumption, real GDP and price of HSD in India using autoregressive distributed lag (ARDL) bounds testing approach of cointegration for the time span 1972-1973 to 2005-2006. Empirical results reveal that the series are cointegrated and long term income elasticity for HSD demand in India is 1.27 while that for short-run is 0.46. Both long-run and short-run price elasticities are found to be statistically insignificant. The study also establishes a short-run bi-directional causality between economic growth and HSD consumption and the existence of a long-run unidirectional causality running from economic growth to HSD consumption. Finally, a set of policy prescriptions have been suggested to reduce the consumption of HSD, which should have no adverse impact on economy in the long-run. (C) 2009 Elsevier Ltd. All rights reserved.