SHAH ABDUL LATIF UNIVERSITY KHAIPUR MIRS

BBA-IV
Hallar Ahmed BBA-E17-09
Assignment Name
“Trace out the impact of oil prices fluctuations on general public and
industries of Pakistan separately with real time data”
Submitted to
Pro: Dr. Salih Memon
Impact on Industries.
The study investigates the short-run and long-run relationship between oil price
fluctuation and real sector growth in Pakistan. Four major sectors of the economy
(Manufacturing, electricity, transport and communication, and livestock) were analyzed
to find any relation. Similar studies can be found in the existing literate, however, the
distinguish feature of present study is that it investigates each individual sector’s linkage
to oil price changes. Annual time series data of selected sectors ranging from 1976 to
2017 is selected for the study. Empirical results indicate that changes in oil price
adversely affect manufacturing, livestock and electricity sectors in short-run and long-
run, while significant positive impact was found on transportation and communication.
Consequently, the sectors prone to oil price changes require special attention of policy
makers. An expansionary monetary policy can be a short-run solution to reduce the
impact of increasing oil price, whereas the government can introduce a policy
framework to counter this effect in long-run.

This study has investigated the relationship between oil price fluctuations and growth of
real sectors in the context of Pakistan. As the economy grows its complexities also grow
and a single variable becomes insufficient to explain the variability in growth of domestic
output. The study used the multifactor classical normal linear model using ARDL
method to capture the long run relationship between oil prices and growth in various
sub-sectors.
The results have revealed that in the long-run and short-run three out of four selected
economic sectors are negatively influenced by changes in oil prices. These three
sectors are manufacturing sector, livestock and electricity sector. However, in the
context of transportation and communication sector, oil price changes have positive
influence. The oil price increments are affecting economic sectors through the supply
and the demand channels, as the rise in oil prices cause an increase in the cost of
production, and consumption of goods to decline.

The introspection into the sub-sectors of the economy reveals that transportation and
communication sector is not vulnerable to oil price fluctuations. So, it can be concluded
that the growth of transportation and communication sector is immune against
fluctuations in oil prices in long-run and short-run. In contrast, the manufacturing sector
growth is vulnerable to fluctuations in oil prices and increments in oil price have a
negative impact on its growth. The manufacturing sector not only has direct
consumption of crude oil and its derivatives, rather in addition to this, the cost of
production for the sector rises when electricity tariffs increase due to rise in oil prices.
Secondly, the decline in household consumption of goods other than necessity further
aggravates that slowdown in growth of the manufacturing sector. The sector that is most
hard hit by the rise in oil prices is the energy sector because it is highly oil intensive and
is adversely influenced by oil price fluctuations in the long-run and short-run. The
energy sector is the driver behind all other economic sectors, and if the output of this
sector is hampered while demand being inelastic; it will result into a slowdown of a
whole economy. The importing nations; consumption of oil exporting countries goes
unharmed during global recessions caused by oil prices. Further, the government shall
take initiatives to diversify the country’s energy mix with greater emphasis on renewable
energy sources. It shall invest in exploring and utilizing in house energy resources like
natural gas, coal and crude oil. All such government initiatives will help in reducing
energy wastage and decrease reliance on imported fuel, which will consequently
strengthen the sustainable supply of energy for industry, reduce the outflow of foreign
exchange and will immune the real sector from the detrimental impact of oil price
shocks. Thirdly, the negative impact of government development expenditures gives an
alarming signal to the policy makers because all the development expenditures are
being consumed on the projects those are not necessary for the growth of
manufacturing sector. The government is putting a huge amount of money in building
roads & bridges, irrigation and urban development & transport. Even though these
projects are important but, these are not the necessity of manufacturing sector. Thus, it
is suggested that the policy makers needs to divert their attention and build projects like
electricity generation from cheap energy sources that is the need of manufacturing and
electricity sector, and it will give some relief to these sectors. Finally, the study also
found that increase in money supply adversely affects most of the sectors. An increase
in money supply means that money demand is being met which brings down the
interest rates, and lending becomes less profitable, as a result, the sector’s growth is
negatively affected by increasing quantity of money in the circulation stream. Moreover,
the increased money supply also minimizes the options for firm saving and investment
because the interest rates in the economy go down. Thus, based upon the findings, the
study provides policy suggestion to the government to control the money supply to
improve the sectors growth.

Annual Consumption of oil in Pakistan

Impact on General Public.
As you know that when oil prices increase then the many sectors tends to increase their
products and services price. Like if oil prices increase then transportation cost will also
increase and because of that many of the firms will increase their products and services
price and it causes the rate of inflation increase and general public will face these
impacts. There are a lot of other impacts that I have already mentioned in paragraphs.