Demand for ground transportation fuel and pricing policy in Asian tigers: A comparative study of Korea and Taiwan

This paper examines the demand for gasoline and diesel in the ground transp ortation sectors of South Korea and Taiwan, comparing the effects of their different pricing policies and stages of economic growth. To account for su bstitutability between the two fuels, the model proposed here user a system of equations estimated simultaneously with rime-series data from 1973-1992 . Results yield demand elasticities that confirm previous research showing that oil product demand is generally price inelastic, while income elastici ties (reflecting a longer period of economic growth than previous studies i n the Asian region) are lower than those previously reported. The estimated demand functions are then used to generate forecasts for both countries an d, in particular, for an assumed reduction in a 180% tax on gasoline in Kor ea. Forecasted increases in demand by the year 2010 range from 40 to 180%, while the tar analysis suggests that Korea's pricing policy has reduced tot al demand and promoted the use of diesel over gasoline.