A Step towards enhancement of Macroeconomic Performance of Pakistan: Do Oil Price, Public Expenditures and Financial Development Matter?

Abstract

Oil price fluctuations have vital importance in macroeconomic performance. Our study demonstrates the impact of oil price fluctuations on the trade balance and economic growth in Pakistan. We employ a linear autoregressive distributed lag model (ARDL) for the period 1970-2018. The results showed that oil price negatively affected the total trade balance in Pakistan other control variables like the real effective exchange rate, real GDP (Home country) and financial development also negatively affected. While real GDP (Foreign country) influenced trade balance positively. In the second model, the results showed that oil price negatively affected economic growth in Pakistan and other control variables like government expenditure, financial development and gross capital formation are positively affected. The study results are useful for policymakers and government officials for making the policies regarding long-run economic growth as well as trade balance improvement.