The Effect of Natural Resource Prices Volatility on Domestic Investment in Pakistan

Abstract

This study aimed to measure the impact of Natural Resources Prices Volatility on investment in Pakistan for the period of 1990–2025. The nature of the data is time series therefore stationarity testing is required, and ADF tests used. Results stationarity test showed that the variables of the model are stationary at different levels. ARDL estimation technique is suitable for estimation in such like case. In the first step the outcomes of Bound test confirm the existence of long run relationship. From the results it is evident that the impact of natural resources price volatility affects domestic investment negatively and significantly. Moreover, the impact of public debt, and exchange rate instability are also found negative and significant in the long run. The outcomes of the present study supported the notion that any macroeconomic instability and public debt leads to declined investment because of the increasing risk and expected fall in profit. Conversely, the impact of trade openness showed a strong positive effect on investment showing that more connectivity with external markets and increasing integration encouraged investment. In the short-run outcomes showed quite similar notion as in the long run. i.e. natural resources price volatility and volatility in exchange rate discouraged investment. The impact of public debt provides a short term relief to investors. The coefficient of ECM is turned negative and significant confirmed that there is long run stable equilibrium in the model. Based on the outcomes it is suggested that a suitable environment can be provided to increase investment in Pakistan NRPV and PB, TO should be kept in policy coordination that can ensured long term economic growth.