Effect of Rising Oil Prices on Trade Balance of Pakistan
EFFECT OF RISING OIL PRICES ON PAKISTAN TRADE BALANCE
ABSTRACT:
The objective of this term paper is to explore the correlation between rising oil prices & deterioration in trade balance of Pakistan. This paper analyzes how the increase in oil prices affect the import bill & export earning of Pakistan .The study consist of annual data for the period 1985-2010.Pakistan is not an oil producing rather oil-importing country. An increase in oil prices result in increased oil imports bill because its demand is inelastic which leads to inflation, increase budget deficit and puts downward pressure on exchange rate which makes imports more expensive & increases the industry production cost which affect its competitiveness in international markets.
INTRODUCTION:
With the advent of industrialization in the last century & the use of petroleum products as the main energy input for all the industries, international crude oil prices has become the key indicator of economic activity.
Although other forms of energy (hydro, natural gas, coal etc) are also in use in Pakistan but still imported oil energy covers a major portion. So therefore any change in international crude oil prices cause to affect all the sectors of the Pakistan economy including the welfare of the society. WTI and Brent are considered the key benchmark for international crude oil prices. Since 2001 oil prices are showing an upward trend & reached all time high level in July 2008 to the value of $148 per barrel.
Before we consider the effect of rising fuel prices on Pakistan trade balance, an important & much related issue is that all the transaction in world crude oil markets are conducted in US dollars & foreign exchange reserves of Pakistan which are used to finance international transactions like other imports, debt repayments etc are also kept in US dollars. Hence an increase in oil import bill tends to put considerable influence on the
ABSTRACT:
The objective of this term paper is to explore the correlation between rising oil prices & deterioration in trade balance of Pakistan. This paper analyzes how the increase in oil prices affect the import bill & export earning of Pakistan .The study consist of annual data for the period 1985-2010.Pakistan is not an oil producing rather oil-importing country. An increase in oil prices result in increased oil imports bill because its demand is inelastic which leads to inflation, increase budget deficit and puts downward pressure on exchange rate which makes imports more expensive & increases the industry production cost which affect its competitiveness in international markets.
INTRODUCTION:
With the advent of industrialization in the last century & the use of petroleum products as the main energy input for all the industries, international crude oil prices has become the key indicator of economic activity.
Although other forms of energy (hydro, natural gas, coal etc) are also in use in Pakistan but still imported oil energy covers a major portion. So therefore any change in international crude oil prices cause to affect all the sectors of the Pakistan economy including the welfare of the society. WTI and Brent are considered the key benchmark for international crude oil prices. Since 2001 oil prices are showing an upward trend & reached all time high level in July 2008 to the value of $148 per barrel.
Before we consider the effect of rising fuel prices on Pakistan trade balance, an important & much related issue is that all the transaction in world crude oil markets are conducted in US dollars & foreign exchange reserves of Pakistan which are used to finance international transactions like other imports, debt repayments etc are also kept in US dollars. Hence an increase in oil import bill tends to put considerable influence on the
References: • Pakistan Energy Yearbook,” Hydrocarbon Development Institute of Pakistan • International Energy Agency (sep 2010) Analysis of the Impact of High Oil Prices on the Global Ec • Ishrat Hussain, (2008)Pakistan Exports competitiveness in Global • Ishaque, Fozia (2008), “Oil Prices Hike; Pakistan Facing the Music” Pakistan and Gulf Economist, Dec3-9, 2007. • Khan, Mehmood-ul-Hassan (2008) Negative Aspects of Macro-economy. Business & Finance Review, the News, Monday February 4, 2008. Industrial, 5.1% Oil Consumption by sector (2010)