Steering Through Uncertainty: Commodity Price Shocks and Pakistan's Automobile Industry

Abstract

Purpose - Recently, conflicts among countries have caused many economic shocks in the global economy. Commodity price shocks are one of the most essential shocks resulting from these conflicts. Industries like automobiles are always most vulnerable to these shocks. This paper examines the impact of commodity price shocks on the automobile industry of Pakistan.

Design/methodology/approach - We used monthly data from July 2008 to June 2020 and employed the SVAR model for our analysis.

Findings - The pattern of the response of the automobile industry to commodity price shocks showed that commodity price shocks' impact on Pakistan's automobile industry is dominant on the supply side. Energy, education, and housing price shocks cause an excess supply of automobiles, whereas transportation prices reduce supply. On the demand side, food, clothing, and footwear price shocks negatively affect demand.

Originality/value - This study increases the knowledge of the impact of commodity price shocks on the automobile industry and is the first study that addresses this issue in Pakistan. It also provides policymakers guidelines and helps them make policies for the development of the automobile industry accordingly.