Microeconomic Gasoline Consumption Anomalies in Mexico: 1997-2007

Thomas Fullerton (), Jorge Ibarra - Salazar and Mario Elizalde

Asian Economic and Financial Review, 2015, vol. 5, issue 4, 709-722

Abstract: Economic expansion in Mexico has caused fuel consumption to increase. Because Mexico does not have sufficient refinery capacity, over 40 percent of total gasoline consumed is imported. This has implications for the balance of payments. In this paper, gasoline demand is empirically examined using cointegration and error correction approaches. The sample period utilized contains a complete business cycle, but does not include the atypical 2008 financial market collapse downturn. Results indicate that long-run equilibrium in the Mexican gasoline market may not exist during the sample period in question. This is potentially attributable to the regulatory regime that governs energy markets in Mexico. Regulated price adjustments that are not consistent with prevailing market conditions run the risk of misallocating resources. Effective gasoline subsidies currently cost Mexico several billion dollars per year. Permitting greater flexibility in private gasoline retail markets may prove beneficial in Mexico. Parameter estimates indicate that gasoline is a normal good. More provocatively, the demand curve for gasoline is found to be upward sloping. That implies that, over the course of the sample period analyzed, the income effect exceeds the substitution effect. Given recent policy changes in Mexico, the latter outcome is not expected to persist.

Keywords: Mexico; Gasoline consumption; Price elasticities; Income elasticities; Time series; Applied econometrics. (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://archive.aessweb.com/index.php/5002/article/view/1371/1981 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:asi:aeafrj:v:5:y:2015:i:4:p:709-722:id:1371

Access Statistics for this article

More articles in Asian Economic and Financial Review from Asian Economic and Social Society
Bibliographic data for series maintained by Robert Allen ().