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The Impact of Automobile Diffusion on the Income Elasticity of Motor Fuel Demand

Abstract:
Prompted by the recent surge in light oil product consumption, this paper analyses the demand for non-commercial motor fuel and proposes a long-run forecasting model. In doing so, our aim is to be able to reproduce a few key stylized facts observed in secular evolutions of the motor fuel intensity of GDP and related notably to the derived nature of oil demand. Using a database covering 77 countries over the 1986-1998 period, we explain sequentially the stock of private vehicles per capita and fuel consumption per vehicle. The former is expressed as an S-shaped function of real per-capita income, which takes into account the dynamics specific to the dissemination of a durable good in a population. By explicitly considering the distinct phases of the development of the automobile market, our approach enables us to propose an explanation to the space-time variability in long-run income elasticities reported in the literature � especially its decline as per-capita income increases and the resulting gap between elasticities in emerging countries compared to developed countries. Our two-equation model also enables us to reproduce the bell shaped curve of the motor fuel intensity of GDP as a function of per-capita income, as well as the other principal properties of resource intensity-of-use linked to the process of dematerialization which, for any country, follows the industrialization period.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy and the Economy – Energy as a Productive Input; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance; Energy and the Economy – Energy Shocks and Business Cycles

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Q34 - Natural Resources and Domestic and International Conflicts
F44 - International Business Cycles

Keywords: Automobile diffusion, motor fuel demand, economic development, gasoline

DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No1-3


Published in Volume 29, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.