Crude Oil Price Variability and Employment Dynamics in Pakistan: A Sectoral Analysis

Abstract

This research analyzed the link between crude oil prices and employment in Pakistan's agricultural, industrial, and services sectors. Pakistan, being an oil-importing country, is heavily dependent on imported oil for its macroeconomic performance. In 2022, the country imported crude oil worth $5.23 billion and was the 29th largest importer of crude oil in the world. The entire economy, as well as each sector, is heavily dependent on imported oil, and consequently its fluctuating prices. Changes in oil prices pose a challenge for Pakistan's sectoral employment through different transmission channels. This research fills the gap in the literature by analyzing the impact of crude oil price on sectoral employment in Pakistan. In this research, time series data for the period 1981–2019 has been used. For employment dynamics in the agricultural, industrial, and service sectors, models based on efficiency wage theory have been developed and estimated using the ARDL co-integration technique. Estimated models indicate that a 1% increase in real crude oil prices resulted in a 0.13%, 0.1%, and 0.02% decline in employment in the agricultural, industrial, and services sectors, respectively. Among sector-specific variables, exports from each sector have a positive impact, while imports have a negative impact on employment in the respective sector. The results of the study recommend the stabilization of oil prices by readjustment of taxes and profit margins of oil companies by the Government of Pakistan. This shall promote tangible sectoral employment leading to the welfare of the impoverished masses.