Energy Economics

Topics: Inflation, Macroeconomics, Monetary policy Pages: 31 (10135 words) Published: June 20, 2013
South Asia Economic Journal http://sae.sagepub.com/

Oil Prices and Economic Activity in Pakistan
Afia Malik South Asia Economic Journal 2010 11: 223 DOI: 10.1177/139156141001100204 The online version of this article can be found at: http://sae.sagepub.com/content/11/2/223

Published by:
http://www.sagepublications.com

Additional services and information for South Asia Economic Journal can be found at: Email Alerts: http://sae.sagepub.com/cgi/alerts Subscriptions: http://sae.sagepub.com/subscriptions Reprints: http://www.sagepub.com/journalsReprints.nav Permissions: http://www.sagepub.com/journalsPermissions.nav Citations: http://sae.sagepub.com/content/11/2/223.refs.html

>> Version of Record - Dec 1, 2010 What is This?

Downloaded from sae.sagepub.com by guest on June 20, 2013

Research Article

Oil Prices and Economic Activity in Pakistan

Afia Malik
Abstract

South Asia Economic Journal 11(2) 223–244 ©2010 Research and Information System for Developing Countries & Institute of Policy Studies of Sri Lanka SAGE Publications Los Angeles, London, New Delhi, Singapore, Washington DC DOI: 10.1177/139156141001100204 http://sae.sagepub.com

Oil price shocks have raised serious concerns among the policy makers around the world because of its adverse impacts for the net oil-importing economies. This article, based on the data from 1979–80 Q1 to 2007–08 Q2, analyzes the impact of rising oil prices along with the changing macro conditions on output. Oil prices and output are found to be strongly related, and to a great extent this relationship is non-linear. In addition, lower debt-GDP ratio, lower deficit spending, lower real effective exchange rate, and the existence of foreign exchange reserves and capital investment would cause output to rise. In Pakistan, besides making adjustments at the macro level, what is required is to make rational choices about the development of energy mix for the future to reduce the risk of oil price fluctuations in the global energy market. JEL: Q43 Keywords Oil prices, output, Pakistan, macro economy

Introduction
Oil prices have risen continuously since 2003 reaching a peak of US$ 137/bbl1 in July 2008, but after that a declining trend has set in. In general, oil prices have always remained fairly volatile. Since 1970s it was the fifth main negative oil shock. These oil price shocks in general, and the recent surge of 2000s in particular, have become a grave concern for the developing economies. Economists around the world are apprehensive about its potential adverse impacts in terms of creating inflationary pressures in the economy, increasing budget deficit and balance of payment problems.2

Afia Malik is Senior Research Economist, Pakistan Institute of Development Economics, Islamabad. Email: malik_afia@yahoo.com

Downloaded from sae.sagepub.com by guest on June 20, 2013

224

Afia Malik

Pakistan with a population of nearly 160 million has been on the path of rising GDP growth in the past few years. But since the last fiscal year, the situation has changed. The upward trend in oil prices which continued for at least five years is regarded as one of the contributory factors. In the energy mix for the year 2007–08, oil accounts for 29 per cent of the total energy used in Pakistan. Although the intensity with which oil is used in total energy consumption has declined in the last few years but still it is the second largest source of energy used after natural gas, which accounts for 40 per cent. As far as the energy intensity is concerned, it has remained almost constant since 1990–91 (that is, 1 per cent), despite the fact that the decrease in energy intensity is considered as the most promising route for reducing vulnerability to oil shocks (Bacon 2005). With oil being the second largest source of energy used along with almost a constant rate of its production, Pakistan is heavily dependent on oil imports from Middle East exporters (Saudi Arab playing the...

Citations: http://sae.sagepub.com/content/11/2/223.refs.html
>> Version of Record - Dec 1, 2010 What is This?
Downloaded from sae.sagepub.com by guest on June 20, 2013
Research Article
Downloaded from sae.sagepub.com by guest on June 20, 2013
224
South Asia Economic Journal, 11, 2 (2010): 223–244
Downloaded from sae.sagepub.com by guest on June 20, 2013
South Asia Economic Journal, 11, 2 (2010): 223–244
Downloaded from sae.sagepub.com by guest on June 20, 2013
Downloaded from sae.sagepub.com by guest on June 20, 2013
Oil Prices and Economic Activity in Pakistan
Downloaded from sae.sagepub.com by guest on June 20, 2013
228
Downloaded from sae.sagepub.com by guest on June 20, 2013
Table 1
1999–2000
Downloaded from sae.sagepub.com by guest on June 20, 2013
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Economic Analisis of Origin Essay
  • Economic Policy and Practice Essay
  • Essay on Macroeconomics The Study Of Economic Activity In The Whole Economy
  • energy economics Essay
  • Economics Essay
  • Liberalizing the Eu Energy Market Essay
  • MGSM845 Essay, Economics
  • Business Economics Discussion Questions Essay

Become a StudyMode Member

Sign Up - It's Free