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The Effect of Oil Prices on Unemployment: Evidence from Pakistan

Author

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  • Ahmad, Fawad

    () (Iqra National University)

Abstract

A developing country like Pakistan is heavily dependent on the oil as inputs for almost every industrial sector therefore increase in oil prices, increases inputs cost, consequently increasing production costs and unemployment rate. Existing literature has mostly focused on the relationship between unemployment and oil prices of developed countries, the current study used the data from developing country Pakistan to investigate the relationship between oil prices and unemployment. The current study used monthly data from the period 1991:01–2010:12, making 238 observations of each variable for analysis and employed Toda Yamamoto causality test. The results of current study suggested the significant effect of oil prices on unemployment but found no significant association between real interest rate and unemployment, thus findings of current study are partially consistent with the efficiency wage model. Furthermore, results suggest that real oil prices cause significant changes in the real interest rate in Pakistan. It can be concluded from the results that oil prices can be used in long run to improve the forecasting of unemployment and real interest rate.

Suggested Citation

  • Ahmad, Fawad, 2013. "The Effect of Oil Prices on Unemployment: Evidence from Pakistan," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 4(1), pages 1-43, January.
  • Handle: RePEc:ris:buecrj:0109
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    Cited by:

    1. repec:eco:journ2:2017-04-09 is not listed on IDEAS
    2. repec:eco:journ2:2017-03-33 is not listed on IDEAS
    3. Priyanshi Gupta & Anurag Goyal, 2015. "Impact of oil price fluctuations on Indian economy," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 39(2), pages 141-161, June.
    4. Muhammad Azam & Faisal Khan & Khalid Zaman & Amran Md. Rasli, 2016. "Military Expenditures and Unemployment Nexus for Selected South Asian Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(3), pages 1103-1117, July.

    More about this item

    Keywords

    Oil prices; Interest rate; Unemployment; Efficiency Wage Model; Toda-Yamamoto;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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