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Asymmetrical relationship between oil price shocks and trade deficit: Evidence from Pakistan

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  • Muhammad Ahad
  • Zaheer Anwer

Abstract

This study investigates the asymmetric impact of oil price shocks on trade deficit for Pakistan economy, using NonLinear ARDL analysis, over the period of 1990QI-2016QIV. The estimation results confirm the presence of nonlinearity in the series. The bound testing approach also establishes the existence of asymmetric relationship between trade deficit and oil price movements. We find that increase (decrease) in oil prices and wholesale prices and decrease (increase) in industrial product results in a significant increase (decrease) in trade deficit. The adjustment pattern, using dynamic multipliers, reveals that the new long-run equilibrium for oil prices can be archived after 1 year and 2 months, wholesale prices by 3 years and 8 months and for industrial growth in 6 years and 6 months. This paper has important policy implications for Pakistani decision-makers.

Suggested Citation

  • Muhammad Ahad & Zaheer Anwer, 2020. "Asymmetrical relationship between oil price shocks and trade deficit: Evidence from Pakistan," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 29(2), pages 163-180, February.
    • Handle: RePEc:taf:jitecd:v:29:y:2020:i:2:p:163-180
    DOI: 10.1080/09638199.2019.1655782
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    Cited by:

    1. Tarek Tawfik Yousef Alkhateeb & Haider Mahmood, 2020. "The Oil Price and Trade Nexus in the Gulf Co-Operation Council Countries," Resources, MDPI, vol. 9(12), pages 1-19, November.
    2. Baek, Jungho & Yoon, Jee Hee, 2023. "Shocks of crude oil prices and world trade policy uncertainty: How much do they matter for China’s trade balance with its three largest partners?," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 914-921.
    3. Balli, Esra & Nazif Çatık, Abdurrahman & Nugent, Jeffrey B., 2021. "Time-varying impact of oil shocks on trade balances: Evidence using the TVP-VAR model," Energy, Elsevier, vol. 217(C).
    4. Liurong Pan & Asad Amin & Nian Zhu & Abbas Ali Chandio & Eric Yaw Naminse & Aadil Hameed Shah, 2022. "Exploring the Asymmetrical Influence of Economic Growth, Oil Price, Consumer Price Index and Industrial Production on the Trade Deficit in China," Sustainability, MDPI, vol. 14(23), pages 1-22, November.
    5. Baek, Jungho, 2023. "A new look at the crude oil shocks and trade nexus: Evidence from bilateral trade between Korea and its three largest partners," Resources Policy, Elsevier, vol. 85(PA).
    6. Oliver E. Ogbonna & Hyacinth E. Ichoku, 2022. "Oil Price, Exchange Rate and Asymmetric Adjustment of Nigeria's Bilateral Trade," Prague Economic Papers, Prague University of Economics and Business, vol. 2022(2), pages 195-213.
    7. Jungho Baek, 2023. "Oil Prices, World Trade Policy Uncertainty, and the Trade Balance: The Case of Korea," Commodities, MDPI, vol. 2(3), pages 1-13, June.
    8. Dahmani Mohamed Driouche & Attouchi Manel & Chenini Moussa & Benbouziane Mohamed, 2020. "Asymmetric Responses of Oil Price Shocks on Economic Growth in Algeria: An Empirical Analysis through NARDL Approach," Energy Economics Letters, Asian Economic and Social Society, vol. 7(2), pages 74-93, December.
    9. Jungho Baek, 2022. "Not all oil shocks on the trade balance are alike: Empirical evidence from South Korea," Australian Economic Papers, Wiley Blackwell, vol. 61(2), pages 291-303, June.
    10. Tarek Tawfik Yousef Alkhateeb & Haider Mahmood, 2020. "Oil Price and Energy Depletion Nexus in GCC Countries: Asymmetry Analyses," Energies, MDPI, vol. 13(12), pages 1-13, June.

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