Nexus among Oil Prices, Current Account Balance and GDP in Pakistan

Abstract

Current Account Balances (CAB) and Gross Domestic Product (GDP), are few of important determinant of country’s economic position. However, for developing countries CAB is almost found in deficit, but still it plays a vital role in Economic performance. With industrialization oil has been one of most important need of economies to grow and survive. Countries with oil reserve have enjoyed fruits of rapid development while others pay millions of dollars to buy oil. Certainly fluctuation on oil prices have affected balance sheet of economies over time. This research focuses on bilateral relation between CAB and oil prices in Pakistan during the period of 1980-2010. Using vector auto regression model it was found that in Pakistan GDP has positive while CAB has negative relation with oil prices.

Keywords: Oil prices, Current account balance, GDP, Pakistan