An Empirical Analysis of the Determinants of Passenger Rail Demand in Melbourne, Australia

Considerable yet largely unexpected growth in passenger rail demand has occurred recently in Australian capital cities. This article uses historical data, together with modern time series methods, to examine empirically the factors that might have contributed to growth in passenger rail demand in Melbourne, Australia, and to gain greater insight into the relationships between the various explanatory variables. A cointegration approach is used to estimate the long-run rail elasticities, while an error correction model is used to estimate short-run elasticities. The study finds that the short – run rail elasticity is twice as low as the long-run elasticity, although both are highly inelastic. The inelastic nature of the demand suggests that a fare increase would not lead to a significant drop in boardings, and hence results in a rise in total revenue. In addition to the fare, city population, petrol price and passenger income exert a positive impact on passenger rail demand.