Determinants of Gasoline and Diesel Demand in Ethiopia
No Thumbnail Available
Date
2002-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
In this paper attempts are made to identify determinants of gasoline and diesel demand
in
Ethiopia. The study estimates gasoline and diesel demand using time series data starting
from 1964/65 to 1999/2000. To determine whether there exists long-run relation between
gasoline and diesel demand and its fundamentals, the Johansen procedure of co-integration
analysis is used. Accordingly, there exists one unique co-integration relation between
gasoline and diesel demand, and its fundamentals. The long-run gasoline demand result
shows that price of gasoline, population growth and urbanization are found to be statistically
significant while price of diesel (relative price), real income per capita, gasoline using
vehicles and real foreign exchange earnings are insignificant. Similarly in the case of diesel
demand; price of diesel (own price), price of gasoline (relative price), real income per capita,
urbanization and diesel using vehicles are found to be statistically significant while
population growth and real foreign exchange are insignificant. In the short-run, price of
gasoline and diesel, gasoline and diesel using vehicles are statistically significant. In terms
of elasticities, gasoline and diesel prices are inelastic while income is marginally elastic for
both demand model. Therefore, diesel is a substitute to gasoline in the long-run and has no
effect on both demand in the short-run.
Finally, since gasoline and diesel price is inelastic in the short-run, the quantity of gasoline
and diesel demand is far less responsive to price changes, while the marginal income
elasticity suggesting that gasoline and diesel demand continue growing as income of the
society increases. However, the prices are tightly controlled and fixed by the government,
and it uses cross subsidization as a deliberate means to influence the pattern of energy
demand
Description
Keywords
Determinants of Gasoline and Diesel Demand, Gasoline and Diesel, Demand Gasoline and Diesel