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Short-Run and Long-Run Elasticities of Diesel Demand in Korea

Author

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  • Kyoung-Min Lim

    (Department of Energy Policy, Graduate School of Energy & Environment, Seoul National University of Science & Technology, 232 Gongreung-Ro, Nowon-Gu, Seoul 139-743, Korea)

  • Myunghwan Kim

    (Department of Energy Policy, Graduate School of Energy & Environment, Seoul National University of Science & Technology, 232 Gongreung-Ro, Nowon-Gu, Seoul 139-743, Korea)

  • Chang Seob Kim

    (Department of Energy IT, Gachon University, Bokjeong-dong, Sujeong-gu, Seongnam-si, Gyeonggi-do 461-701, Korea)

  • Seung-Hoon Yoo

    (Department of Energy Policy, Graduate School of Energy & Environment, Seoul National University of Science & Technology, 232 Gongreung-Ro, Nowon-Gu, Seoul 139-743, Korea)

Abstract

This paper investigates the demand function for diesel in Korea covering the period 1986–2011. The short-run and long-run elasticities of diesel demand with respect to price and income are empirically examined using a co-integration and error-correction model. The short-run and long-run price elasticities are estimated to be −0.357 and −0.547, respectively. The short-run and long-run income elasticities are computed to be 1.589 and 1.478, respectively. Thus, diesel demand is relatively inelastic to price change and elastic to income change in both the short-run and long-run. Therefore, a demand-side management through raising the price of diesel will be ineffective and tightening the regulation of using diesel more efficiently appears to be more effective in Korea. The demand for diesel is expected to continuously increase as the economy grows.

Suggested Citation

  • Kyoung-Min Lim & Myunghwan Kim & Chang Seob Kim & Seung-Hoon Yoo, 2012. "Short-Run and Long-Run Elasticities of Diesel Demand in Korea," Energies, MDPI, vol. 5(12), pages 1-10, November.
    • Handle: RePEc:gam:jeners:v:5:y:2012:i:12:p:5055-5064:d:21800
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