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Fuel Demand Elasticities in Brazil: A Panel Data Analysis with Instrumental Variables

Author

Listed:
  • Frederico Uch a

    (Department of Economics, Universidade Federal da Bahia, Brazil,)

  • Cleiton Silva de Jesus

    (Universidade Estadual de Feira de Santana, Brazil,)

  • Leonardo Chaves Borges Cardoso

    (Universidade Federal de Vi osa, Brazil.)

Abstract

The aim of this paper is to provide demand elasticities for the three main fuels used in Brazil: gasoline, ethanol and diesel. We used a panel data approach at municipal level for the period between 2007 and 2016. The innovation in this study is in its introduction of a new instrumental variable for prices, combining three taxes and municipal distance from state capital. The main results are as follows: i) the gasoline, ethanol and diesel demands are price elastic, meaning that all own-price elasticities are greater than one; ii) ethanol consumption is more elastic when the CNG price is added as an explanatory variable, but this does not apply to gasoline; iii) an increase in GDP positively affects the demand for gasoline and diesel (less than proportionally), but does not affect demand for ethanol; iv) fleet size impacts the consumption of all fuels, except when the CNG price is excluded from the ethanol model; v) the ethanol-to-gasoline price ratio is a relevant variable for the demand of both gasoline and ethanol.

Suggested Citation

  • Frederico Uch a & Cleiton Silva de Jesus & Leonardo Chaves Borges Cardoso, 2020. "Fuel Demand Elasticities in Brazil: A Panel Data Analysis with Instrumental Variables," International Journal of Energy Economics and Policy, Econjournals, vol. 10(2), pages 450-457.
    • Handle: RePEc:eco:journ2:2020-02-52
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Fuel demand; Causal inference; Panel data analysis; price elasticity; cross price elasticity.;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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