This study empirically investigates the dynamic relationship between global oil price fluctuations and industrial sector of Pakistan for the time period 1974-2015 by employing an Autoregressive Distributed Lag Model. The findings suggest that industrial sector is prone to the global oil price fluctuations where observed and forecasted oil price volatility along with the net oil price increase relative to preceding three years has negatively significant effect on industrial value added share in GDP. Moreover, the oil price shock driven by the global demand has positive while the oil market-specific shock geared by precautionary increase in oil demand has negative effect on industrial value added, in the long run. Overall, uncertain oil price fluctuations and endogenously determined nature of oil price increase has dominant effect on the industrial sector in Pakistan than the annual oil price changes. The findings suggests domestic price stability along with move towards export diversification to form a strong industrial base rendering international oil price fluctuations impartial, on the one hand and for reaping the potential benefits of devaluation of domestic currency, on the other. However, improved energy efficiency and low oil dependency in the long run will be required to stimulate the industrial sector’s contribution in GDP.
Keywords: Industrialization; Energy, Macro Economy; Pakistan