Impact Of Oil Prices And Other Macro Economic Variables On Gdp

3979 words - 16 pages

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 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 who has to return this borrowed money in the future period of time. This is against the principal of sustainable development. So for sustained development-developing today’s world without compromising the needs of the future generations’ government to gradually remove this subsidy to decrease allocative and productive inefficiency.

2. Introduction
Economics is the managnment of scarce resources. We live in the world of scarcity and. Where from basic necessity to luxury even the human being is a scarce commodity. So in order to uncertainity use at the optimum level, we have to use the scarce resources as efficient as possible. Crude oil is a scarce commodity in the world. Its Elasticity of demand and supply both are less elastic.Because of demand and supply factors and also because of other intervening variables like cartel, hoarding, supply shocks etc., day by day prices are increasing and causing demand pull as well as cost push inflation.
In a country like Pakistan international...

Find Another Essay On Impact of Oil Prices and Other Macro Economic Variables on GDP

Analysis of the Impact of Oil Prices on the Global Economy

1197 words - 5 pages supplies and increasing of demand without considering the speculators factor in short-run. In long-run, the oil price will definitely go down. On the other hand, the price may be peaked already. This will result of the speculators unloading their oil inventories, causing prices to fall sharply. Reference: 1. 2.     kjhj 3.     A titanic struggle between supply

Describe what is included in each of the components of GDP. (You may exclude government spending.) Explain how each component of GDP is influenced (and why) by other variables in the economy

511 words - 2 pages GDP = Consumption + Investment + Government + (Exports - Imports). Consumption spending by individuals, by far the largest portion of GDP (± 70%), includes goods and services used up in a relatively short period of time. These are goods and services which people buy on a regular basis, such as food, entertainment, rent, clothes, and gas. Investment spending accounts for the second largest portion of GDP (± 15%). These are goods and

OPEC and Their Control on Oil Prices

1499 words - 6 pages impact that this will have on the oil market. OPEC is finding that with the financial crisis striking, the demand for oil is retreating. The full affect of falling oil prices, on OPEC, has yet to be determined ("Opec's extraordinary", 2008).There are currently 13 types of oil calculated to come up with the price per barrel (Reference Prices, 2008). The types of oil, and the countries they come from are: Arab Light oil from Saudi Arabia, Basra

Oil and Gas Prices

1981 words - 8 pages importance. By Oil and Gas Prices Page Four Developing alternative sources of energy, we can place ourselves in a position where we can begin to promote a less costly energy. What about other alternatives? One of the most spoke of options is the drilling in the Arctic National Wildlife Refuge, which is located in the northeast area of Alaska. Since the 1950's, there has been considerable discussion of its role in minimizing our dependency on foreign

Gasoline Prices and the Effect on the Supply and Demand of Other Goods and Services

818 words - 3 pages Gasoline Prices and the Effect on the Supply and Demand of Other Goods and Services"A market force is an economic force that is given relatively free rein by society to work through the market." (Colander, 2004) As supply decreases prices increase and as supplies increase the cost of goods decrease. This paper will discuss gasoline prices and the effect on the supply and demand of other goods and services.Gasoline prices in March of 1981 reached

The Effect of Oil Prices on the Food Industry

1204 words - 5 pages countries were those that were dependant on oil and those that imported foodstuff. In Sub-Saharan Africa where farmers are dependent on oil, the price of food had to increase due to the expense incurred. Increase in oil price was directly responsible for the increase in food products as farmers had to pay more to get oil. Imported farm inputs such as fertilizers and pesticides prices rely on the oil price. When oil price is high, the importation

Effects of the Rising Oil Prices on the Transportation Industry

1944 words - 8 pages The transportation industry relies on oil to keep its road, rail, maritime and air networks operating. As time goes on oil is becoming increasingly scarce resulting in price increases. This research essay will delve into the effects of rising oil prices will have on the transport industry along with solutions. Oil is the main driving force behind the transportation industry as no other alternatives burn as cleanly, or are as safe to

The Fiscal Policy and its Impact on the GDP

1500 words - 6 pages goods dramatically rising. The value of the dollar may also impact an Italian clothing company. Goods originally priced in foreign currency must be calculated and converted into U.S. currency. Per the Bureau of Labor Statistics, in the event of a decrease in the value of the dollar the company would feel an immediate impact in profitability, resulting in an increase of import prices (“Focus on Prices and Spending”). Gross Domestic Product (GDP

Increasing Oil and Gasoline Prices

1270 words - 5 pages part to the shipment expenses and other costs involved in transporting oil and gasoline to and from refineries and gas stations. While the last two common causes of increased oil and gasoline prices have been a bit shallow when they are looked at in concert with one another then we can start to see why prices are on the rise. Speculation is the third common cause of increasing oil prices. While crisis in oil exporting countries and supply

Subprime Meltdown & Cause and Effect of Rising Oil Prices

3208 words - 13 pages ; immediately, the price of oil jumped over $4 at speculation that energy demand would increase. Equally, during periods of economic contraction such as recessions, demand for oil and other types of energy tends to fall, leading to reductions in price. In China, for example, manufacturing fell during July and August 2008, and oil prices followed (Wikinvest, 2008).Surging demand in emerging markets such as India and China have squeezed supplies

he role of economic geography in economic development and the impact of ICT on economic growth

2233 words - 9 pages countries are armed with good communications. On the contrary, some writers believe that geography still matters a great deal for economic interaction and for the spatial distribution of income.To discuss, I will concentrate on the role of economic geography in economic development and the impact of ICT on economic growth. From the existing inequality of economic development, we can see distance still matters in terms of economic transactions and

Similar Essays

Oil Prices And Economic Growth Essay

1194 words - 5 pages raised serious concerns among the policy makers all over the world. The adverse economic impact of higher oil prices on oil-importing developing countries is generally considered as more worse than for the developed countries because of their more reliance on imported oil and are more energy-intensive. Malik. A (2007) also mentioned in her research that, the recent surge in the oil prices especially after 2000 has worried many economists about

Oil Prices And Economic Growth Essay

1194 words - 5 pages some serious concerns among the policy makers all over the world. The unfavorable economic impact of high oil prices on oil-importing developing countries is generally considered as more adverse than for the developed countries because of their more dependence on imported oil and less efficient in this case. Malik. A (2007) also mentioned in her research that, the recent surge in the oil prices especially after 2000 has worried many economists

Impact Of Increasing Crude Oil Prices On Indian Industries

1566 words - 6 pages Impact of increasing crude OIL prise on Indian industries.India is an energy importing country, primarily of oil and soon of gas. Its imports are growing while its domestic production lags behind the fast pace of demand growth. The Indian government is conscious of the need to diversify its sources of supply and also to boost domestic supply of primary energy as well as final products (LPG, kerosene, natural gas, lubes, etc.). On the exploration

The Impact Of The Oil Prices On The Stock Return Of Alternative Energy Companies

1881 words - 8 pages in the oil price and this increase has become a reason for an extensive deliberation on the future of oil as the leading player in the energy sector and the socio-economic. The situation also provides an opportunity to decision makers to move towards alternative energy. Basically, oil prices are finalized in the long run by supply and demand. The pattern is not different from other commodities. But, in the short run, oil prices are affected by