Economics at your fingertips  

Revisiting income and price elasticity of gasoline demand in India: new evidence from cointegration tests

Kakali Kanjilal () and Sajal Ghosh ()
Additional contact information
Kakali Kanjilal: International Management Institute (IMI)
Sajal Ghosh: Management Development Institute (MDI)

Empirical Economics, 2018, vol. 55, issue 4, 1869-1888

Abstract: Abstract This study investigates cointegration among gasoline demand, real price of gasoline and real GDP for India for the period 1971–1972 to 2012–2013. It also estimates short-run and long-run elasticity of gasoline demand with respect to its price and GDP. Johansen–Juselius and ARDL bounds test methods establish that gasoline demand, gasoline price and GDP are cointegrated. Regime shift cointegration tests with endogenous structural breaks, on the other hand, ascertain cointegration between gasoline demand and GDP. Gasoline demand is found to be highly elastic with respect to real income and real price in the long-run. However, in the short-run, price is inelastic. The study deviates from previous studies in two important aspects. First, price is found to be elastic in the long-run as opposed to being inelastic in both short term and long term as established in the previous studies. Second, income elasticity has declined in magnitude. These findings are quite intriguing and are consistent with policy changes in the Indian economy. The Toda–Yamamoto version of Granger causality tests establishes long-term unidirectional causality from real income to gasoline consumption. The study discusses possible reasons behind the empirical findings, and finally, a set of policy prescriptions are suggested to reduce the consumption of gasoline, which should have no adverse impact on economy in the long-run.

Keywords: Gasoline demand; India; Cointegration; ARDL bounds tests; Granger causality (search for similar items in EconPapers)
JEL-codes: D12 O53 Q31 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla ().

Page updated 2019-05-21
Handle: RePEc:spr:empeco:v:55:y:2018:i:4:d:10.1007_s00181-017-1334-2