Is Global Gasoline Demand Still as Responsive to Price?

The popular perception among the lay community seems to be that gasoline consumption does not respond to price. However, numerous econometric studies have been done on gasoline demand elasticities and at least thirteen studies have been devoted to surveying this work. (See Dahl (2006).) All of these surveys conclude that gasoline consumption does respond to price, and most of them come to a quantitative conclusion about the values for the price elasticity. The majority conclude that the short-run price elasticity (annual) is between -0.2 and -0.3, and the long-run elasticity is between -0.6 and -0.9. However, over time gasoline expenditures have become a smaller percent of consumer budgets and vehicles have become more durable. These changes might have implications for both short- and long-run responsiveness to price. We have found five recent econometric studies for transport fuel demand on three countries that have data beyond 2000. Of these recent studies only Hughes et al. (2006) tested whether recent price and income elasticities are statistically similar to an earlier period for the U.S. They used monthly data and found a smaller price response recently compared to the 1970s. We build upon Hughes et al. and other studies by examining whether gasoline demand elasticities are stable using an Autoregressive Distributed Lag model (ARDL) for the U.S., 13 other OECD countries, and 9 other non-OECD countries representing the majority of current and potential future key consumers. Our results support those of Hughes et al. and find the U.S. price responsiveness is lower now than in the 1970's. Surprisingly, however, we find that price elasticities have been stable for the majority of other countries in our investigation. We also find gasoline tends to have inelastic short- and long-run price elasticities that are smaller in absolute value than income elasticities for most countries.