IDEAS home Printed from https://ideas.repec.org/a/ijr/beejor/v4y2016i41p23-34.html
   My bibliography  Save this article

Impact of Oil Price Volatility on Manufacturing Production of Pakistan

Author

Listed:
  • Muhammad Faraz Riaz

    (Government College University Faisalabad, Pakistan.)

  • Maqbool Hussain Sial

    (University of Sargodha, Pakistan.)

  • Samia Nasreen

    (Government College Women University Faisalabad, Pakistan.)

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.

Suggested Citation

  • Muhammad Faraz Riaz & Maqbool Hussain Sial & Samia Nasreen, 2016. "Impact of Oil Price Volatility on Manufacturing Production of Pakistan," Bulletin of Energy Economics (BEE), The Economics and Social Development Organization (TESDO), vol. 4(1), pages 23-34, March.
    • Handle: RePEc:ijr:beejor:v:4:y:2016:i:41:p:23-34
    as

    Download full text from publisher

    File URL: http://tesdo.org/shared/upload/pdf/papers/BEE,%204_1_,%2023-34%20.pdf
    Download Restriction: no
    File URL: http://tesdo.org/journal_detail.php?paper_id=188&expand_year=2016
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Cunado, J. & Perez de Gracia, F., 2005. "Oil prices, economic activity and inflation: evidence for some Asian countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(1), pages 65-83, February.
    2. Tang, Weiqi & Wu, Libo & Zhang, ZhongXiang, 2010. "Oil price shocks and their short- and long-term effects on the Chinese economy," Energy Economics, Elsevier, vol. 32(Supplemen), pages 3-14, September.
    3. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
    4. Afia Malik, 2010. "Oil Prices and Economic Activity in Pakistan," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 11(2), pages 223-244, September.
    5. Faria, João Ricardo & Mollick, André Varella & Albuquerque, Pedro H. & León-Ledesma, Miguel A., 2009. "The effect of oil price on China's exports," China Economic Review, Elsevier, vol. 20(4), pages 793-805, December.
    6. Surender Kumar, 2009. "The Macroeconomic Effects of Oil Price Shocks: Empirical Evidence for India," Economics Bulletin, AccessEcon, vol. 29(1), pages 15-37.
    7. Clarida, Richard & Gali, Jordi, 1994. "Sources of real exchange-rate fluctuations: How important are nominal shocks?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 1-56, December.
    8. François Lescaroux & Valérie Mignon, 2008. "On the Influence of Oil Prices on Economic Activity and Other Macroeconomic and Financial Variables," Working Papers 2008-05, CEPII research center.
    9. Rautava, Jouko, 2004. "The role of oil prices and the real exchange rate in Russia's economy--a cointegration approach," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 315-327, June.
    10. Lombardi, Marco J. & Galesi, Alessandro, 2009. "External shocks and international inflation linkages: a global VAR analysis," Working Paper Series 1062, European Central Bank.
    11. Hamilton, James D, 2001. "A Parametric Approach to Flexible Nonlinear Inference," Econometrica, Econometric Society, vol. 69(3), pages 537-573, May.
    12. Hamilton, James D, 1988. "A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 593-617, June.
    13. Faria, João Ricardo & Mollick, André Varella & Albuquerque, Pedro H. & León-Ledesma, Miguel A., 2009. "The effect of oil price on China's exports," China Economic Review, Elsevier, vol. 20(4), pages 793-805, December.
    14. Le Viet Trung & Nguyen Thi Thuy Vinh, 2011. "The impact of oil prices, real effective exchange rate and inflation on economic activity: Novel evidence for Vietnam," Discussion Paper Series DP2011-09, Research Institute for Economics & Business Administration, Kobe University.
    15. Brown, Stephen P. A. & Yucel, Mine K., 2002. "Energy prices and aggregate economic activity: an interpretative survey," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 193-208.
    16. Chuku, Chuku & Effiong, Ekpeno & Sam, Ndifreke, 2010. "Oil price distortions and their short- and long-run impacts on the Nigerian economy," MPRA Paper 24434, University Library of Munich, Germany.
    17. Noor-e-Saher, 2011. "Impact of Oil Prices on Economic Growth and Exports Earning: In the Case of Pakistan and India," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 14(40), pages 117-151, June.
    18. Chen, Shiu-Sheng & Chen, Hung-Chyn, 2007. "Oil prices and real exchange rates," Energy Economics, Elsevier, vol. 29(3), pages 390-404, May.
    19. Mork, Knut Anton, 1989. "Oil and Macroeconomy When Prices Go Up and Down: An Extension of Hamilton's Results," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 740-744, June.
    20. repec:bla:opecrv:v:32:y:2008:i:4:p:343-380 is not listed on IDEAS
    21. Tatom, John A., 1988. "Are the macroeconomic effects of oil-price changes symmetric?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 28(1), pages 325-368, January.
    22. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    23. Don Bredin & John Elder & Stilianos Fountas, 2010. "The Effects of Uncertainty about Oil Prices in G-7," Working Papers 200840, Geary Institute, University College Dublin.
    24. Kilian, Lutz, 2010. "Oil price volatility: Origins and effects," WTO Staff Working Papers ERSD-2010-02, World Trade Organization (WTO), Economic Research and Statistics Division.
    25. Hui Guo & Kevin L. Kliesen, 2005. "Oil price volatility and U.S. macroeconomic activity," Review, Federal Reserve Bank of St. Louis, vol. 87(Nov), pages 669-684.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nagmi M. Moftah Aimer, 2016. "The Effects of Oil Price Volatility on the Economic Sectors of Libya," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 6(12), pages 13-24, December.
    2. Nagmi M. Moftah Aimer, 2016. "The Effects of Oil Price Volatility on the Economic Sectors of Libya," International Journal of Business and Social Research, LAR Center Press, vol. 6(12), pages 13-24, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Muhammad Arshad Khan & Ayaz Ahmed, 2011. "Macroeconomic Effects of Global Food and Oil Price Shocks to the Pakistan Economy: A Structural Vector Autoregressive (SVAR) Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 50(4), pages 491-511.
    2. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    3. Raza, Syed Ali & Shahbaz, Muhammad & Amir-ud-Din, Rafi & Sbia, Rashid & Shah, Nida, 2018. "Testing for wavelet based time-frequency relationship between oil prices and US economic activity," Energy, Elsevier, vol. 154(C), pages 571-580.
    4. Alom, Fardous, 2011. "Economic Effects of Oil and Food Price Shocks in Asia and Pacific Countries: An Application of SVAR Model," 2011 Conference, August 25-26, 2011, Nelson, New Zealand 115346, New Zealand Agricultural and Resource Economics Society.
    5. Liu, Donghui & Meng, Lingjie & Wang, Yudong, 2021. "The asymmetric effects of oil price changes on China’s exports: New evidence from a nonlinear autoregressive distributed lag model," Journal of Asian Economics, Elsevier, vol. 77(C).
    6. Nguyen Thi Ngoc Trang & Tran Ngoc Tho & Dinh Thi Thu Hong, 2017. "The Impact of Oil Price on the Growth, Inflation, Unemployment and Budget Deficit of Vietnam," International Journal of Energy Economics and Policy, Econjournals, vol. 7(3), pages 42-49.
    7. Zhang, Dayong & Broadstock, David C. & Cao, Hong, 2014. "International oil shocks and household consumption in China," Energy Policy, Elsevier, vol. 75(C), pages 146-156.
    8. Muhammad Arshad Khan & Muhammad Iftikhar Ul Husnain & Qaisar Abbas & Syed Zulfiqar Ali Shah, 2019. "Asymmetric effects of oil price shocks on Asian economies: a nonlinear analysis," Empirical Economics, Springer, vol. 57(4), pages 1319-1350, October.
    9. Kocaarslan, Baris & Soytas, Mehmet Ali & Soytas, Ugur, 2020. "The asymmetric impact of oil prices, interest rates and oil price uncertainty on unemployment in the US," Energy Economics, Elsevier, vol. 86(C).
    10. Juncal Cunado & Soojin Jo & Fernando Perez de Gracia, 2015. "Revisiting the Macroeconomic Impact of Oil Shocks in Asian Economies," Staff Working Papers 15-23, Bank of Canada.
    11. Miriam Kamah & Joshua S. Riti, 2020. "Dissecting the Linkages between Variations in Crude Oil Price and Selected Macroeconomic Variables in Nigeria," Journal of Contemporary Research in Business, Economics and Finance, Michael Laurence, vol. 2(2), pages 37-46.
    12. Saleh Mothana Obadi & Matej Korcek, 2015. "Investigation of Driving Forces of Energy Consumption in European Union 28 Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 422-432.
    13. Gulzar Khan & Adiqa Kiani & Ather Maqsood Ahmed, 2017. "Globalization, Endogenous Oil Price Shocks and Chinese Economic Activity," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 22(2), pages 39-64, July-Dec.
    14. Matteo Manera & Alessandro Cologni, 2006. "The Asymmetric Effects of Oil Shocks on Output Growth: A Markov-Switching Analysis for the G-7 Countries," Working Papers 2006.29, Fondazione Eni Enrico Mattei.
    15. Berna Aydogan & Istemi Berk, 2015. "Crude Oil Price Shocks and Stock Returns: Evidences from Turkish Stock Market under Global Liquidity Conditions," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 54-68.
    16. Du, Limin & Yanan, He & Wei, Chu, 2010. "The relationship between oil price shocks and China's macro-economy: An empirical analysis," Energy Policy, Elsevier, vol. 38(8), pages 4142-4151, August.
    17. Heidari, Hassan & Ebrahimi Torki, Mahyar & Babaei Balderlou, Saharnaz, 2015. "How Do Different Oil Price Shocks Affect the Relationship Between Oil and Stock Markets?," MPRA Paper 80273, University Library of Munich, Germany, revised 24 Dec 2016.
    18. Ahmed, Khalid & Bhutto, Niaz Ahmed & Kalhoro, Muhammad Ramzan, 2019. "Decomposing the links between oil price shocks and macroeconomic indicators: Evidence from SAARC region," Resources Policy, Elsevier, vol. 61(C), pages 423-432.
    19. Rafiq, Shuddhasawtta & Salim, Ruhul & Bloch, Harry, 2009. "Impact of crude oil price volatility on economic activities: An empirical investigation in the Thai economy," Resources Policy, Elsevier, vol. 34(3), pages 121-132, September.
    20. Angelidis, Timotheos & Degiannakis, Stavros & Filis, George, 2015. "US stock market regimes and oil price shocks," Global Finance Journal, Elsevier, vol. 28(C), pages 132-146.

    More about this item

    Keywords

    Oil Prices; Oil Price Volatility; GARCH; Manufacturing Production;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ijr:beejor:v:4:y:2016:i:41:p:23-34. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Muhammad Shahbaz (PhD Applied Economics) (email available below). General contact details of provider: https://edirc.repec.org/data/tesdopk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.