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

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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: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels, Q35: Hydrocarbon Resources

Keywords: gasoline demand, diesel demand, fuel substitution, Fuel pricing policy, system of equations

DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No2-6

Published in Volume20, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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