Impact of Oil Price Volatility on Manufacturing Production of Pakistan

Muhammad Faraz Riaz, Maqbool Sial and Samia Nasreen
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Muhammad Faraz Riaz: Government College University Faisalabad, Pakistan.

Bulletin of Energy Economics (BEE), 2016, vol. 4, issue 1, 23-34

Abstract: Oil intensive manufacturing base can be a source of economic instability for an economy particularly in the wake of high oil price volatility. Oil price shocks exert adverse impacts on economies like Pakistan from both supply and demand side. Using time series analysis this paper attempts to estimate the impact of oil price uncertainty on manufacturing sector in Pakistan. As a first step in the analysis an EGARCH-in-Mean model was utilized to develop and measure an appropriate proxy for oil price uncertainty. In the second step, an ARDL regression was specified for manufacturing production as function of oil price uncertainty and its square term along with other economic determinants. Results revealed that manufacturing production is non-linearly related with oil price uncertainty, as initially manufacturing production in Pakistan increases with increase in oil price uncertainty but after a threshold level manufacturing production starts declining with increase in oil price uncertainty. Furthermore, short run effects of oil price uncertainty checked through impulse response function showed contractionary effects on manufacturing production.

Keywords: Oil Prices; Oil Price Volatility; GARCH; Manufacturing Production (search for similar items in EconPapers)
JEL-codes: Q4 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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