Crude Oil Prices and Its Effect on Economic Growth; Analyzing Pre and Post Oil Prices Shocks: A Case Study of Pakistan Economy

Abstract

This study attempts to investigate the effect of crude oil prices on Economic Growth in the presence of controlled variables Remittances, Political Instability and House Hold Consumption in case of Pakistan. This study analyzed the effect of both pre and post oil prices hike of 2008 and its impact on economic growth in case of Pakistan economy. This study uses Structural Break Point Unit root test to check the structural break and Structural Break Dummy variables to analyze the effect of both pre and post oil prices hype on Pakistan Economic Growth. The results indicate that there exist negative relationship between crude oil prices and economic growth. Structural break dummy verify a visible change in economic growth, both pre and post oil prices hype. The results also verified positive relationship between remittances inflow and economic growth. However, there exist negative relationship between Political instability and economic growth of Pakistan.

Keywords: Crude oil prices, Economic Growth, Structural Break Point test, Structural Dummy.