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Title “Dynamic of Food Inflation in Pakistan. Role of Trade Liberalization and Oil Prices”

Author(s) Ms. Asma Shahbaz

Abstract Since 2008, food price has been a major topic of debate around the world. Food prices spiked dramatically in 2008, prompting a considerable investigation into the responses and dynamics of this particular incidence of food prices. An increase in fuel prices and speculative behavior in agricultural commodity financial markets were all attributed in the international literature to food prices. This study looks into the causes of food inflation in Pakistan. Food prices in Pakistan seem to be a source of concern for policymakers, and the country's high food prices have necessitated an investigation of the fundamental factors that determine food prices. The current study investigates the effects of trade liberalization and higher fuel prices on food inflation in Pakistan, and also another indicator, the presence of middlemen, which restricts supply and increases food prices. The standard implication is to work with single equation model (econometric model) in which food inflation is dependent determinant while trade openness, crude oil price, and some other determinants are taken as explanatory variables. The purpose of the research is to look at the cost-push variables (crude oil prices and price wedge) and demand-pull (money supply, trade liberalization) determinants that influence food price. Data over the period spanning 1980 to 2020 were used in this investigation. Data is compiled from a variety of sources, including the World Development Indicators, and Pakistan Economic Survey. The other determinants used in the study include exchange rate, price wedge and money supply. The coefficient of trade openness is negative -0.18 which shows a negative relationship between trade openness and food inflation and variable is significant at 5%. On the other hand, the coefficient of crude oil prices is positive 0.11 and the variable is significant at 5%. The ECM term of -0.54 means that the speed of adjustment towards long run equilibrium, which is 54% between the variables and the error correction model is also statistically significant. The study's outcomes show that trade openness significantly reduces food inflation, reflecting Romer's hypothesis in Pakistan. Second, crude oil prices have a significant influence on food inflation. The research reveals that food inflation is determined by the money supply. According to this analysis, the government should enhance price caps on oil prices to prevent spillover effects on food supply and production costs. Key Words: Food Inflation, Oil Prices, Trade Openness, ARDL

Type Thesis/Dissertation

Faculty Management Sciences

Department Economics

Language English

Publication Date 2023-02-28

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