Impact of Oil Prices and Other Macro Economic Variables on GDP

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1. Abstract The objective of the study is to measure the impact of changing oil prices, and other macro economic variables like consumption, government expenditures and average exchange rates on Gross Domestic Product-GDP in the context of Pakistan’s economy. The study is secondary data based and the observation is 150 with five variables and 30 years of data. The data is taken from World Bank,, State Bank of Pakistan, Economic Survey of Pakistan, Federal Reserve Bank of America, Federal Bureau of Statistics Pakistan, Pakistan Development Review, Federal Board of Revenue, OPEC and Euro Journal. First the stationary of the variables were checked by augmented dickey fuller-unit root test and data. All variables were stationary except the average exchange rate which was non stationary. By ordinary least square method and Johansen Cointegration test both short rum and long run relationship is found. The major finding of the study are these that changing oil prices have negative relationship with GDP, while changing government expenditures and average exchange rates have positive relationship or impact on GDP. Since oil is the major import of Pakistan and every year we spend a lot of foreign exchange to purchase this basic necessity so that for government there are two policy recommendations. First that the government must either try to find out cheap and better substitutes for oil like CNG or LPG but must also try to involve foreign Multi-National Companies MNCs to do oil exploration specially in Attock region, Balochistan and Sindh to exploit these available resources to over come this deficiency. Secondly if government gives subsidy to encourage common man to raise his purchasing power, this puts additional pressu... ... middle of paper ... ...l security Washington Hillard G. Huntington(2007), “Oil shocks and real U.S. income.(Industry overview)”, | The Energy Journal. Karl Scerri and Adriana Reut (2009), “UK public finances and oil prices: tax bonanza from black gold”, Directorate for the Economies of the member States, EU. Rehana Siddiqui (2000) “Demand for energy and the revenue impact of changes in energy prices” Pakistan Institute of Development Economics Islamabad Syrous K. Kooros, Ayser Phillip Sussan, Marjorie Semetesy (2006), “The Impact of Oil Prices on Employment”, International Research Journal of Finance and Economics US Department of Energy report 2006 pp 145 12. Websites

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