Oil Price Volatility and its Impact on Economic Growth in Pakistan

Muhammad Jawad^1,

¹Department of Leadership and Management Sciences, National Defence University Islamabad

Cite this paper:
Muhammad Jawad. Oil Price Volatility and its Impact on Economic Growth in Pakistan. Journal of Finance and Economics. 2013; 1(4):62-68. doi: 10.12691/jfe-1-4-2

Abstract

The main objective of this research is to analyze the impact of oil price volatility on the economic growth of Pakistan. Secondary data from 1973 to 2011 were used to estimate the coefficients. Linear Regression analysis is used to analyze the dependency among the dependant and independent variables. All variable Oil price, Oil supply, oil demand, Gross Domestic production, Public sector investment, private sector investment and Trade balance is stationary at 1^st Difference through ADF test. Trade Balance, Private sector investments have a significant effect on Gross domestic production and Public sector investment, Oil price volatility has insignificant impact on Gross domestic production. Government should make a proper plan and procedure according to Pakistan’s economic growth and requirement which would help to maintain the equilibrium of oil demand and supply and decreased the impact of oil price volatility on the economic growth. Meanwhile, the government of Pakistan also focused on its trade balance and also tries to increase private sector investment to increase its economic growth.

Keywords:
oil price volatility linear regression macroeconomic variables economic growth of Pakistan

This work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References:

[1]	ADB (2004). “Asian Development Outlook 2004”, Asian Development Bank.
[2]	Afia Malik (2008). “How Pakistan is Coping with the Challenge of High Oil Prices”, MPRA Paper.
[3]	Amjad Bashir (2012). “Macroeconomic Stability and Growth: Building Competitiveness in Pakistan”, LCCI Research Economic note.
[4]	Bacon, Robert (2005). “The Impact of High Oil Prices on Low Income Countries and the Poor”. UNDP/ESMAP (United Nation Development Programme/ World Bank.
[5]	Bacon, Robert and Masami Kojima (2006). “Coping with High Oil Prices”. ESMAP Report 323/06, The World Bank.
[6]	Balasubramanian K (2004). "Supply Chain Management in Oil Management Distribution Business: A Perspective on IT Alternatives and Issues", Whitepaper Infosys Technologies Ltd.
[7]	Barsky, R.B., and L. Kilian (2004). “Oil and the Macroeconomy Since the 1970s,”. Journal of Economic Perspectives, Vol 18(4), pp. 115-134.
[8]	Blanchard, Olivier J. and Jordi Gali (2007). “The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?”. available at www.crei.cat/people/gali/pdf-files/bgoli07wp.pdf
[9]	Bruno, M. and Sachs, J. (1982). “Input price shocks and the slowdown in economic growth: The case of UK Manufacturing, Review of Economic Studies”. 49, 679-706.
[10]	C.-Y.-C. Lin (2011), ‘‘ESTIMATING SUPPLY AND DEMAND IN THE WORLD OIL MARKET,’’ The Journal of Energy and Development, Vol. 34, Nos. 1 and 2, 2011.
[11]	Dees, S., Karadeloglou, P., Kaufmann, R.K., and Sanchez, M. (2007). “Modelling the world oil market: Assessment of a quarterly econometric model”. Energy Policy, (35:1), pp. 178-191.
[12]	Economic survey of Pakistan 2010-11.
[13]	Edward Morse and James Richard, (2002). “Alternative energy investments cause Saudi Arabia to flood the market to tank oil prices”. The Battle for Energy Dominance, Foreign Affairs 81.2, Ebsco.
[14]	Hamilton, J. D. (1996). “This is what happened to the oil price-macroeconomy relationship”. Journal of Monetary Economics, 38(2), 220.
[15]	Hamilton, James D. (1983), “Oil and the Macroeconomy Since World War II,”Journal of Political Economy, 91, pp. 228-248.
[16]	Hunt, B., Isard, P., and Laxton, D. (2001). “Macroeconomic Effects of Higher Oil Prices”. IMF Working Paper No. WP/01/14.
[17]	Inayat Ullah Mangla (2011). “Reconstructing the Performance of Pakistan’s Political Economy: Another Paradigm”, The Lahore Journal of Economics 16 : SE (September 2011): pp. 31-70.
[18]	International Energy Agency. (2004). Analysis of the Impact of High Oil Prices on the Global Economy.
[19]	International Financial Statistics (IFS) various issue, International Monetary Fund (IMF).
[20]	Jack Selody, (2012). “The Future of Oil: Geology versus Technology”, IMF Working Paper.
[21]	Jean-Marie Chevalier et al., (2010).“ Report Of The Working Group On Oil Price Volatility”, Centre de traduction MINEIE et MBCPFP.
[22]	Jiménez-Rodríguez, R., & Sánchez, M. (2012). “Oil price shocks and real GDP growth: empirical evidence for some OECD countries”. European Central Bank Working Paper Series(362).
[23]	Khan, B., Ahmed. and Ali, Mubashir, Syed. (2000). “Energy Policy in Pakistan: An Investigation of The Tariff Structure of Petroleum Products”. Working Paper No. 00-24. Centre for Management and Economic Research, Lahore University of Management Sciences, Lahore.
[24]	Kilian, L. (2009b), “Comment on ‘Causes and Consequences of the Oil Shock of 2007-08’ by James D. Hamilton,” Brookings Papers on Economic Activity, 1, Spring 2009, 267-278.
[25]	Latife Ghalayini, (2011). “The Interaction between Oil Price and Economic Growth”, Middle Eastern Finance and Economics. Issue 13.
[26]	Leonardo Maugeri, (2012). “OIL: THE NEXT REVOLUTION”, Discussion Paper 2012-10, Belfer Center for Science and International Affairs,Harvard Kennedy School.
[27]	Malik, A. (2007). “How is Pakistan Coping with the Challenge of High Oil Prices?”. The Pakistan Development Review46:4.
[28]	Muhammad Bachal Jamali, Asif Shah, Hassan Jawad Soomro, Kamran Shafiq and Faiz M.Shaikh, (April 2011). “Oil Price Shocks: A Comparative Study on the Impacts in Purchasing Power in Pakistan”. Modern Applied Science Journal. Vol. 5, No. 2.
[29]	NOOR UL HAQ and KHALID HUSSAIN, (2008). “ENERGY CRISIS IN PAKISTAN”, IPRI Factfile.
[30]	Nooreen Mujahid, Roohi Ahmed and Khalid Mustafa, 2007. “Does Oil Price Transmit to Emerging Stock Returns: A case study of Pakistan Economy”.
[31]	Pakistan Economic Survey 2010-2011.
[32]	Pakistan Economic outlook, 2010. Viewed on http://spearheadresearch.org/SR _CMS/wp-content/uploads/2011/02/PAKISTAN_ECONOMIC_OUTLOOK.pdf.
[33]	Peter Voser. (2011), “Oil Price Volatility Will Remain For Next Decade”, Business China.
[34]	Rebeca Jimenez-Rodriguez & Marcelo Sanchez, (2005). "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor and Francis Journals, vol. 37(2), pages 201-228.
[35]	Siddiqui, Rehana. (2005) “Demand for energy and the revenue impact of changesin energy prices”, Pakistan Institute of Development Economics, Islamabad.
[36]	Tetsuya NAKANISHI & Ryoichi KOMIYAMA, (2006). "Supply and Demand Analysis on Petroleum Products and Crude Oils for Asia and the World” IEEJ.
[37]	Tim Evans, (2004). “Oil, Oil Everywhere, But Not A Drop to Spare”, High Yield Report;5/31/2004, Vol. 15 Issue 22, p3.