Oil Price Fluctuations and Its Impact on Balance of Payment: Evidence From Pakistan

The objectives of this this study is to investigate the relationship between oil prices, money supply, inflation rate, exports, real exchange rate and balance of payment of Pakistan using 40 years' time series data sourced from World Bank's World Development Indicators and International Monetary Fund. Balance of payment served as dependent variable while money supply, foreign direct investment, inflation rate, exports and real exchange rate acted as independent variables. The study used econometric techniques such as Correlation Matrix, ARDL and Error Correction Models to estimate short-and-long-term relationship between variables. The findings of ARDL Model reveal that foreign direct investment, and exports exert positive impact on the balance of payments, while money supply, inflation rate, real effective exchange rate, and oil prices adversely influence it, suggesting controlling these variables to keep the balance of payment favorable.