Short- and long-run elasticities of gasoline demand in India: An empiricalanalysis using cointegration techniques

In developing countries like India, consumption of petroleum products has i mplications on its balance of payments, economic growth and fiscal deficit. Gasoline is one of the prime petroleum products. In this paper, the relati onship between gasoline demand, national income and price of gasoline is em pirically examined using cointegration and error correction techniques. The time frame of the analysis is from 1972-1973 to 1993-1994. It has been fou nd that gasoline demand is likely to increase significantly for a given inc rease in the gross domestic product. The increase will be larger in the lon g-run (2.682) than in the short-sun (1.178). Gasoline demand is relatively inelastic to price changes, both in the long and short terms. The error cor rection model has shown that gasoline demand adjusts to their respective lo ng-run equilibrium at a relatively slow rate, with about 28% of adjustment taking place in the first year. (C) 1999 Elsevier Science B.V. All rights r eserved.