# Gasoline Demand Elasticities at the Backdrop of Lower Oil Prices: Fuel-Subsidizing Country Case

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## Abstract

**:**

## 1. Introduction

## 2. Literature Review

## 3. Theoretical Framework and Functional Specification

## 4. Econometric Methodology

#### Multiplicative Indicator Saturation (MIS) Approach

## 5. Data

## 6. Empirical Estimation Results

#### 6.1. Unit Root Test Results

#### 6.2. Long and Short-Run Estimation Results

#### 6.2.1. TVCC Estimation Results

#### 6.2.2. STSM Estimation Results

#### 6.2.3. MIS Estimation Results

#### 6.2.4. MIS Short-Run Results

## 7. Discussion of Empirical Results

## 8. Conclusions and Policy Insights

## Author Contributions

## Funding

## Acknowledgments

## Conflicts of Interest

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**Figure 1.**Plots of the variables (in logarithmic scale). notes: g, i, and p are gasoline demand and income, both in per capita terms, and real gasoline price, respectively.

**Figure 2.**Plots of the differenced variables. notes: dg, di and dp are differenced gasoline demand and income, both in per capita terms, and real gasoline price, respectively. d is difference operator.

Study | Country/Country Group | Period | Data Type | Methodology | Price Elasticity | Income Elasticity | ||
---|---|---|---|---|---|---|---|---|

SR | LR | SR | LR | |||||

Totto and Johnson [10] | OPEC | 1970–1979 | T/A | MOLS | n/a | −0.09 | n/a | 1.02 to 1.26 |

Al-Sahlawi [11] | KSA | 1970–1985 | T/A | OLS/PAM | −0.08 | −0.67 | 0.11 | 0.92 |

Al-Faris [12] | KSA | 1970–1990 | T/A | OLS/PAM | −0.08 | −0.30 | 0.02 | 0.07 |

Eltony [13] | GCC | 1975–1989 | T/A | CFE /PAM | −0.09 to −0.11 | −0.11 to −0.13 | 0.21 to 0.41 | 0.23 to 0.48 |

Eltony [14] | GCC | 1975–1993 | T/A | CFE /PAM | −0.11 | −0.17 | 0.31 | 0.48 |

Al-Faris [15] | KSA | 1970–1991 | T/A | OLS/PAM | −0.09 | −0.32 | 0.03 | 0.11 |

Al-Sahlawi [16] | KSA | 1971–1995 | T/A | OLS/PAM | −0.16 | −0.80 | 0.30 | 1.50 |

Alves et al. [17] | Brazil | 1974–1999 | T/A | OLS/ECM | −0.09 | −0.46 | 0.122 | 0.12 |

Cheung and Thomson [18] | China | 1949–1999 | T/A | VECM | −0.19 | −0.56 | 1.64 | 0.97 |

De Vita et al. [19] | Namibia | 1980–2002 | T/Q | ARDL | −0.79 | 0.96 | ||

Polemis [20] | Greece | 1978–2003 | T/A | VECM | −0.10 | −0.38 | 0.36 | 0.79 |

Akinboade et al. [21] | South Africa | 1978–2005 | T/A | ARDL | - 0.47 | 0.36 | ||

Chakravorty et al. [22] | KSA | 1972–1992 | T/A | OLS/PAM | −0.08 | −0.52 | 0.10 | 0.66 |

Crotte et al. [23] | Mexico | 1980–2006, 1993–2004 | T/A and P | GMM, OLS, FMOLS | −0.06 (OLS), −0.10 (FMOLS), −0.15 (GMM) | −0.06 (OLS), −0.29 (FMOLS), −0.39 (GMM) | 0.78 (OLS), 0.43(FMOLS), 047 (GMM) | 0.76 (OLS), 0.53(FMOLS), 1.19 (GMM) |

Park and Zhao [24] | U.S. | 1976 −2008 | T/A | TVCC | −0.42 (M1), −0.66 for (M2). | 0.48 for (M1), 0.57 for (M2). | ||

Liddle [25] | 14 OECD Countries | 1978–2005 | P/A | Panel DOLS and FMOLS, Panel Granger-causality | −0.16 | −0.43 | 0.28 | 0.34 |

Neto [26] | Switzerland | 1973: Q1 to 2010: Q4 | T/Q | FMOLS/TVC | −0.17 | 0.69 | ||

Dahl [27] | Panel of 120 countries, AZE included | Different time intervals | T/A and P | Review of previous studies (In some cases, the author employed different techniques to find the missed elasticities.) | n/a | −0.22 (AZE) | n/a | 1.27 (AZE) |

Coyle et al. [28] | U.S. | 1990–2009 | T/Q | OLS, 3SLS | −0.08 | −0.06 ^{a}, −0.08 ^{b} | 0.41 | 0.36 ^{a}, 0.46 ^{b} |

Ben Sita et al. [29] | Lebanon | 2000:M1–2010:M12 | T/M | Structural breaks | −0.62 | −0.30 | 0.31 | 1.14 |

Sene [30] | Senegal | 1970 to 2008 | −0.12 | 0.46 | ||||

Al Yousef [31] | THE KSA | 1980–2010 | P/A | Panel FMOLS & DOLS | n/a | −0.28 to −0.36 | n/a | 0.55 to 0.56 |

Burke and Nishitaten [32] | 132 countries | 1995–2008 | P/A | PPOLS | n/a | −0.5 to −0.2 | n/a | 0.95 to 1.10 |

Baranzini and Weber [33] | Switzerland | 1970–2008 | T/Q | ECM | −0.09 | −0.34 | 0.03 | 0.67 |

Lin and Prince [34] | USA | 1990−2012 | T/M | OLS | −0.07 to −0.03 | −0.29 to −0.24 | 0.03 to 0.27 | 0.23 to 0.27 |

Ackah and Adu [35] | Ghana | 1971–2010 | T/A | STSM | −0.01 | −0.07 | 0.713 | 5.13 |

Scott [36] | 29 countries | 1990–2011 | P/A | FE 2SLS, PMGE | −0.05 to −0.20 | −0.74 to −0.19 | 0.25 to 0.28 | 0.82 to 1.09 |

Arzaghi and Squalli [1] | 32 fuel-subsidizing Countries, AZE included | 1998–2010 | P/A | CFE, RE, FE /PAM | −0.05 | −0.25 | 0.16 | 0.81 |

Hössinger et al. [37] | Austria | 2002M10–2011M12 | T/M | OLS | −0.14 | 0.18 | ||

Atalla et al. [38] | KSA | 1981–2015 | T/A | STSM | −0.09 to −0.10 | −0.15 ^{c}, −0.09 ^{d} | insignificant | 0.15, 0.62 |

Mikayilov et al. [39] | KSA | 1980–2017 | T/A | TVCC | −0.13 | −0.31 to −0.05 | insignificant | 0 to 0.15 |

Mousavi and Ghavidel [40] | Iran | 1980–2016 | T/A | STSM | n/a | −0.24 to −0.17 | n/a | 0.38 to 0.48 |

Mikayilov et al. [41] | Russia | 2002Q1–2018Q1 | T/Q | DOLS, FMOLS, CCR, STSM, TVCC | n/a | −0.17 | n/a | 0.78 |

^{a}with no economic controls;

^{b}with macroeconomic controls;

^{c}with GDP;

^{d}with non-oil GDP; KSA = Kingdom of Saudi Arabia.

Elliott-Rothenberg-Stock DF-GLS Test (ERS) | Kwiatkowski-Phillips-Schmidt-Shin Test | ||||||
---|---|---|---|---|---|---|---|

Variables | Level | k | First Difference | k | Level | First Difference | |

Intercept | ${g}_{t}$ | 0.021 | 2 | −17.413 *** | 1 | 1.530 *** | 0.181 |

${i}_{t}$ | 1.048 | 1 | −2.448 ** | 6 | 1.392 *** | 0.572 * | |

${p}_{t}$ | −0.486 | 2 | −19.878 *** | 0 | 0.253 *** | 0.202 | |

Intercept and trend | ${g}_{t}$ | −2.117 | 2 | 0.439 *** | |||

${i}_{t}$ | 0.048 | 2 | 0.415 *** | ||||

${p}_{t}$ | −1.388 | 2 | 0.156 * |

Panel A | Panel B | ||||
---|---|---|---|---|---|

Variable Addition Test | TVC Significance Test | ||||

Test Statistics | Test Statistics | ||||

3.50 | 149.33 | ||||

Critical Values | |||||

1% | 5% | 10% | 1% | 5% | 10% |

13.18 | 9.49 | 7.78 | 9.21 | 5.99 | 4.61 |

FC | Polynomials (p = 2) | FC | |||||
---|---|---|---|---|---|---|---|

Chosen terms | $1$ | $\frac{t}{T}$ | ${\left(\frac{t}{T}\right)}^{2}$ | 1 | |||

Corresponding coefficients of the chosen terms | |||||||

(intercept) | ${\theta}_{0}$ | ${\theta}_{1}$ | ${\theta}_{2}$ | Price | |||

İncome | coefficients | −4.695 | 0.252 | 0.263 | −0.177 | −0.15 | |

p-values | (0.000) | (0.017) | (0.016) | (0.096) |

ect(−1) | dp(−1) | Constant Term | R_Square | Sigma | |
---|---|---|---|---|---|

−0.726 [0.0000] | −0.090 [0.0000] | −0.7070 to 0.438 | 0.739 | 0.069 | |

Diagnostic tests’ results | |||||

AR test | ARCH test | Normality test | Hetero test | Hetero X test | RESET test |

1.3743 [0.2192] | 0.43057 [0.8822] | 2.1657 [0.3386] | 0.76945 [0.6301] | 0.68131 [0.7252] | 0.080982 [0.9222] |

Eigenvalues | Price | Income | Constant Term | R_Square | Prediction Error Variance: | ||
---|---|---|---|---|---|---|---|

0.002466 | 2.71 × 10^{−19} | −8.470 × 10^{−22} | −0.117 [0.018] | 0.350 to 0.397 | −4.745 to −4.455 | 0.731 | 0.005 |

Diagnostic tests’ results | |||||||

Normality | H(56) | Q(24) | r(1) | r(24) | DW | ||

2.8288 [0.2431] | 0.40921 [0.9995] | 22.617 [0.0000] | −0.128 | −0.024 | 2.211 |

ect(−1) | Dincome(−1) | Constant Term | R_Square | PREDICTION Error Variance: | |
---|---|---|---|---|---|

−0.784 [0.000] | 0.397 [0.005] | −0.370 to 0.569 | 0.888 | 0.006 | |

Diagnostic tests’ results | |||||

Normality | H(56) | Q(24) | r(1) | r(24) | DW |

1.6745 [0.4329] | 36.178 [0.0000] | 36.178 [0.0527] | −0.053 | 0.004 | 2.099 |

Cointegration Test | p | Income | Constant Term | R_Square | Sigma |
---|---|---|---|---|---|

−44.717 [0.0000] | −0.190 [0.001] | 0.635 to 0.802 | −7.448 to −5.760 | 0.962 | 0.119 |

Diagnostic tests’ results | |||||

AR test | ARCH test | Normality test | Hetero test | Hetero X test | RESET test |

1.5508 [0.1535] | 0.59958 [0.7558] | 1.4682 [0.4799] | 0.69356 [0.8144] | 0.69693 [0.8645] | 1.8727 [0.1568] |

**Notes:**cointegration test is = Banerjee et al. [72] cointegration test; constant term = constant term of regression equation; sigma = regression standard error; AR test=Ljung and Box [62] test for autocorrelation; ARCH = autoregressive conditional heteroscedasticity test [63]; Normality test = Doornik and Hansen [64] test; Hetero test = White [65] heteroscedasticity test; Hetero X test = White [65] heteroscedasticity test using squares and cross-products; RESET = Ramsey [66] Regression Specification Test.

ect(−1) | Dincome(−1) | Constant Term | R_Square | Sigma | |
---|---|---|---|---|---|

−0.741 [0.0000] | 0.332 [0.0114] | −0.885 to 0.590 | 0.672 | 0.077 | |

Diagnostic tests’ results | |||||

AR test | ARCH test | Normality test | Hetero test | Hetero X test | RESET test |

1.5150 [0.1652] | 1.5592 [0.1502] | 2.8067 [0.2458] | 1.2929 [0.2500] | 1.1727 [0.3153] | 0.13447 [0.8743] |

**Notes:**ect(−1) = lagged value of error correction term; dincome(−1) = lagged value of differenced income; constant term = constant term of regression equation; sigma=regression standard error; AR test = Ljung and Box [62] test for autocorrelation; ARCH = autoregressive conditional heteroscedasticity test [63]; Normality test = Doornik and Hansen [64] test; Hetero test = White [65] heteroscedasticity test; Hetero X test = White [65] heteroscedasticity test using squares and cross-products; RESET=Ramsey [66] Regression Specification Test.

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Mikayilov, J.I.; Mukhtarov, S.; Mammadov, J.
Gasoline Demand Elasticities at the Backdrop of Lower Oil Prices: Fuel-Subsidizing Country Case. *Energies* **2020**, *13*, 6752.
https://doi.org/10.3390/en13246752

**AMA Style**

Mikayilov JI, Mukhtarov S, Mammadov J.
Gasoline Demand Elasticities at the Backdrop of Lower Oil Prices: Fuel-Subsidizing Country Case. *Energies*. 2020; 13(24):6752.
https://doi.org/10.3390/en13246752

**Chicago/Turabian Style**

Mikayilov, Jeyhun I., Shahriyar Mukhtarov, and Jeyhun Mammadov.
2020. "Gasoline Demand Elasticities at the Backdrop of Lower Oil Prices: Fuel-Subsidizing Country Case" *Energies* 13, no. 24: 6752.
https://doi.org/10.3390/en13246752