Development of crude oil in Pakistan: The role of oil production, macroeconomic factors and environment

Abstract

Carbon emissions from fossil fuels have turned-out one of the most hazardous and complex issues driving the climate change debate. The growing demand for crude oil import plays a significant role in country's economy at the same time increasing worldwide emissions. This study estimates the relationship among five major contributing factors, including crude-oil-production, inflation rate, human and economic development, and CO₂ emissions from 1986 to 2022. To explore the relationship between energy and non-energy factors, the autoregressive distributive lag, Johansen cointegration trace and prediction models are employed to investigate the integrations of variables, which is good fit to organize the short and long-run impacts. The main results show that (i) carbon emissions and economic growth appear to have inadequate effect on crude oil production in the short-run; however, a long-run relationship is found between human development index and the inflation rate which can be maintained by minimum dependence on imported fuel. (ii) The eigen and trace cointegration relationship provides a unique relationship at the 0.05 % significance level between estimated variables, indicating long-run relationship between them. (iii) The prediction analysis shows that root mean square error is greater than mean absolute error while mean absolute percentage error for crude oil production is estimated at 7.4 %, proposing that crude oil processing in the country can fight against inflation. Finally, being a necessary product, policies can be expressed to support Pakistan in obtaining crude oil production that is advantageous to economic and societal progress regarding regulations and ecological criteria.