Fuel demand in Brazil in a dynamic panel data approach

Gervásio F. Santos

Energy Economics, 2013, vol. 36, issue C, 229-240

Abstract: The purpose of this paper is to evaluate the sensitivity of fuel consumers regarding price and income, taking recent changes in the Brazilian fuel market into account. In this market, new market rules, energy policy towards fuel diversification and introduction of flex-fuel engines have determined fuel competition among gasoline, ethanol and compressed natural gas. Using a dynamic panel data model, demand equations for these three fuels are econometrically estimated to obtain consumer adjustment coefficients, price, cross-price and income elasticities in the short and long-run. In addition, the effect of the introduction of flex-fuel engines in the market and the rationality of consumers towards efficiency constraints of the engines were tested. Apart from considerable competition, results show that the dynamics of the Brazilian fuel market revolves around ethanol instead of gasoline. While demands for gasoline and natural gas are inelastic to price, demand for ethanol is elastic in Brazil. Furthermore, after the introduction of the flex-fuel technology the sensitivity of consumers to fuel prices changed, and ethanol consumers take efficiency constrains into account when ethanol prices reach the threshold of 70% of gasoline prices.

Keywords: Fuel demand; Energy policy; Ethanol; Flex-fuel vehicle; Dynamic panel data model (search for similar items in EconPapers)
JEL-codes: C01 D12 L11 O33 Q21 Q41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:36:y:2013:i:c:p:229-240

DOI: 10.1016/j.eneco.2012.08.012

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