Measuring the Impact of Changing Oil Prices and other Macro Economic Variables on GDP in the Context of Pakistan’s Economy

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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 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 stationarity of the variables were checked by the Augmented Dickey Fuller-unit root test. By the regression analysis tests a relationship is developed. The major findings of the study show that changing oil prices have negative relationship with GDP, while changing government expenditures and average exchange rates have 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, LPG or Ethanol but must also try to involve foreign Multi-National Companies MNCs to do oil exploration specially in Attock region, Balochistan and Sindh to exploit available resources to overcome this deficiency. Secondly if government gives subsidy to encourage common man to raise his purchasing power, this puts additional pressure on the government expenditure and exchequer. Government has to finance this subsidy by borrowing from financial institutions may be local or foreign. From both points of view this puts additional burden on the next generation wh... ... middle of paper ... ...Management And Economic Research, Lahore University of Management Sciences, Lahore. Luft, Gal. (2006), “The Oil Crisis and its Impact on the Air Cargo Industry.”, Institute for the Analysis of Global Security, Washington. Huntington, Hillard G. (2007), “Oil shocks and real U.S. income.(Industry overview)”, | The Energy Journal. Scerri, Karl. and Reut, Adriana. (2009), “UK public finances and oil prices: tax bonanza from black gold”, Directorate for the Economies of the member States, EU. Siddiqui, Rehana. (2000) “Demand for energy and the revenue impact of changes in energy prices” Pakistan Institute of Development Economics Islamabad Kooros,Syrous K. Sussan,Ayser Phillip. Semetesy Marjorie. (2006), “The Impact of Oil Prices on Employment”, International Research Journal of Finance and Economics US Department of Energy Report 2006 pp 145

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