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Price Volatility and Demand for Oil: A Comparative Analysis of Developed and Developing Countries

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  • Andrew Jobling
  • Tooraj Jamasb

Abstract

During the past three decades the global oil market has seen significant price volatility. Literature to date has not analysed the cross-country effect of the recent episode of price instability. Previous studies have either not considered this period or have not utilised panel data techniques and therefore have not provided a comparative analysis of developed and developing countries. This paper explores the income and price elasticities between these two country groups and discusses the economic implication of the results. We use a panel data analysis accounting for income and price asymmetry and apply the dynamic fixed-effects methodology to separate panels for developed and developing countries for the period 1980-2012. Sixteen countries are included in this analysis which account for over 65% of total global oil consumption. A particular focus is on the income and substitution effects. The results indicate heterogeneous response to oil price shocks. Developing countries have an income effect 6.3 times stronger than developed countries. The substitution effect in developed countries is 2.1 times stronger than in developing countries. Policy recommendations include the pursuing of oil-efficiency improving technology, and ensuring that regional consumption pattern variations are considered in policy formation.

Suggested Citation

  • Andrew Jobling & Tooraj Jamasb, 2015. "Price Volatility and Demand for Oil: A Comparative Analysis of Developed and Developing Countries," Cambridge Working Papers in Economics 1512, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1512
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    1. repec:eee:eneeco:v:63:y:2017:i:c:p:51-65 is not listed on IDEAS
    2. repec:eee:ecanpo:v:57:y:2018:i:c:p:88-101 is not listed on IDEAS
    3. Huntington, Hillard & Barrios, James & Arora, Vipin, 2017. "Review of Key International Demand Elasticities for Major Industrializing Economies," MPRA Paper 87532, University Library of Munich, Germany.

    More about this item

    Keywords

    Oil price; oil demand; income effect; price effect;

    JEL classification:

    • Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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