Abstract
Due to its importance to the world economy, oil price volatility is still one of the vital sources of economic instability for oil importing developing economies such as Pakistan. Historically, fluctuations in global oil prices have been associated with inflationary pressures, trade imbalances and currency depreciation thus affecting macroeconomic performance. In this paper, the effect of oil price volatility and adoption of renewable energy on Pakistan’s economic growth has been investigated from 2008 to 2023 by using time series econometric approach. The study uses Autoregressive Distributed Lag (ARDL) model and incorporates oil price volatility (OVX), renewable energy consumption (RES), exchange rate (EXR), interest rate (IR) and industrial production index (IPI) to uncover their joint impact on GDP growth.
The main results indicate that oil price volatility is negatively associated with economic growth while the effects are positive associated with oil consumption, and they appear with a lag, pointing out the long term disturbances caused by energy price shocks. On the other hand, how the adoption of renewable energy leads to stabilization of the GDP thus, showing that adoption of renewable energy is potent enough to stabilize the economy through oil price shocks. Certainly exchange rate movements will impact macroeconomic trends, but in any case will not affect GDP growth directly whereas interest rates will neither impact macroeconomic trends. The significance of energy diversity, stable exchange rate, and industrial reforms is made clear for the economy of Pakistan to be more resilient.