Determinants of Kerosene and LPG Demand in Ethiopia

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In this paper attempts are made to identify determinants of kerosene and LPG demand in Ethiopia. The study estimates kerosene and LPG demand using time series data stalting 1964/65 to 2004/05 . To detemline whether there exists long run relation between kerosene and LPG demand and its detenninants, the johansen procedure of cointegration analysis used. Accordingly, there exists one unique co-integration relation between kerosene and LPG demand, and its result shows that the real price of kerosene, real price of LPG, real per capita income and real foreign exchange eamings are found to be statistically significant while population growth and level of urbanization are statistically insignificant. Similarly in the case of LPG demand; real price of LPG (own price), real price of kerosene (relative price), population growth, level of urbanization and real foreign exchange earnings are found to be statistically significant while only real per capita income is statistically insignificant. In the short-run, price of Kerosene, real per capita income and population growth are statistically significant in kerosene demand and real price of LPG, real per capita income, population growth are statically significant in LPG demand. In terms of elasticities, kerosene price and LPG price are elastic and inelastic, respectively while income is marginally elastic for both fuel demand model. In the •long run, LPG is a substitute to Kerosene and electricity, other modern energy so urces are a substitute to LPG .. finally, in the short run, the government should use direct pricing policy on LPG product and regulated and pre detennined kerosene pricing policy on kerosene product to increase its revenue. This kerosene price should be set below LPG price. As the result, the government can earn more revenue fiom'both products.



Demand, Ethiopia