Time-Varying Income and Price Elasticities of Oil Demand in OECD Countries

Mohamad Husam Helmi, Abdurrahman Nazif Çatık, Çağla Bucak, Esra Ballı and Coşkun Akdeniz
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Mohamad Husam Helmi: Rabdan Academy, Abu Dhabi, United Arab Emirates
Abdurrahman Nazif Çatık: Department of Economics, Faculty of Economics and Administrative Sciences, Ege University, Izmir, Turkey
Çağla Bucak: Department of Economics, Faculty of Economics and Administrative Sciences, Ege University, Izmir, Turkey
Esra Ballı: Department of Economics, Faculty of Economics and Administrative Sciences, Erzincan Binali Yıldırım University, Erzincan, Turkey
Coşkun Akdeniz: Department of Economics, Faculty of Economics and Administrative Sciences, Tekirdag Namık Kemal University, Tekirdag, Turkey

International Journal of Energy Economics and Policy, 2024, vol. 14, issue 6, 303-311

Abstract: This study examines the long-run income and price elasticities of oil demand in 21 OECD countries using quarterly data from 1980:Q1 to 2021:Q3. We find that oil demand is inelastic with respect to both income and prices at 0.117 and −0.179, respectively. The cointegration tests reveal instability in oil price elasticities over time. The time-varying panel data estimates support these findings, showing significant variations in elasticities influenced by oil market dynamics and global events. Income elasticities reached their highest levels during the COVID-19 pandemic, while price elasticities ranged from −0.396 to 0.275. Significantly, the sign of oil price elasticities shifted from negative to positive after 2015, contrary to the law of demand, probably because of declining oil prices during that period. The largest positive and statistically significant price elasticity occurred in early 2020, which can be attributed to the COVID-19-induced decline in oil prices. Overall, this analysis contributes to understanding oil demand dynamics and highlights the impact of economic and oil market factors on elasticities.

Keywords: Oil Demand; Income Elasticity; Price Elasticity; Time-Varying Panel; OECD (search for similar items in EconPapers)
JEL-codes: C33 D50 E31 Q41 (search for similar items in EconPapers)
Date: 2024
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