Hameed T
Oil is becoming the most prominent indicator of economic growth in Pakistan with increase of its demand. Also oil prices are doing their main contribution to impact the GDP of Pakistan including different shock dummies in data. In this study, Cobb-Douglas production function has used to construct three models by introducing three major sectors of oil consumption of Pakistan (Transport, Power and Industrial sector oil consumption) and Pakistan's oil price variable to investigate the impact on GDP. ADF(1979) and Johansen Maximum Likelihood method of cointegration (1988) are used to test the order of integration, Long run and short run dynamics between variable respectively using annual data since 1972-2011 in context of Pakistan. Through examining the results, the long run and dynamic relationship has detected for all the variables except industrial oil consumption and oil price variables for model has no short run impact on GDP. Oil prices impacting real GDP negatively in long run but positively in short run.
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