Estimating the demand for gasoline in developing countries: Senegal

Outline

• Abstract
• Keywords
• 1. Introduction
• 2. Background
• 3. Literature Review
• 4. the Model
• 5. the Data
• 6. Specification Error Tests
• 7. Estimation Results and Interpretation
• 8. Conclusion
• Acknowledgment
• References

Conclusions

In this paper, an attempt has been made to estimate the demand for oil in developing countries particularly in Senegal. First, the linear specification of the demand for oil is rejected in favor of the log-linear specification with λ=1 tested against λ=0. This indicates that the elasticity of demand is not constant over the sample of study with respect to all variables included in this study. Secondly, what is really important here is that economic productivity is a major determinant of the demand for gasoline. As Moosa (1998) indicates” what matter in the long-run as the major determinant of the demand for oil, is economic activity as proxy by GDP or Income” (p. 9) . Finally, the variations of oil price play an important role for the determinant of the demand for gasoline in the short run only. ” [The] long-run effect [of demand gasoline] is limited to it being conducive to switching to other forms or energy” (p. 9) such as natural gas, fossil fuel etc. However, to investigate policy implications based on these findings, one should exercise caution. First overall, the negative value for gasoline price does not indicate that gasoline price is not crucial in Senegal. Many researchers on the subject argue that, it ” rather implies that gasoline prices operates technically almost and entirely via the choice of cars (used cars in Senegal and in many developing countries) and that the past fluctuations in gasoline price have not been considerable to reduce gasoline usage in the sector of transport generally. Moreover, the negative impacts of gasoline price on public transportation in Senegal implies a long-run impact on gasoline demand and its use. Variations in the price of gasoline however, are found to have negative impact on the demand and use of gasoline in Senegal.

Consequently the price index for public transportation will tend to increase mostly in developing countries where regulation and law enforcement is very critical. Population growth is also very important (0.19598) because if population increases, demand for gasoline increases and prices for gasoline might increase as well. In this particular study however, public transportation index and coefficient estimated (−1.0138) express the behavioral changes of spiking gasoline prices in Senegal. Therefore, the short run elasticity is a measure of change in driving behavior as a result of a change in the world oil prices since Senegal a major importer of crude oil around the world. Then a driver’s response to higher price is largely composed of a reduction in the amount of driving (vehicle miles traveled) and an increase in the fuel efficiency of driving. To keep oil product prices uniform across the country I think that the government of Senegal has to put in place a systemic price adjustment mechanism to balance the cost of transport in remote areas. Certainly, this could generate a very strong incentive for malpractice, especially on the transport segment of the downstream oil sector in the country.

However, this might not necessarily affect the quality of the products traded on the market, but it could have a significant financial impact on the gasoline industry. The findings of this paper confirms various empirical studies regarding gasoline demand in developing countries. Yet it reaffirms the skepticism addressed by many researcher on the subject regarding the log-linear specification or formulation of the demand for oil or gasoline function as highlighted in Moosa’ study (1998)