Oil demand and technical progress

Abstract

This analysis provides an empirical perspective on the role of technical progress in OECD oil demand since 1971. It differentiates the role of price-induced and exogenous technical progress from other time-related factors that may influence oil demand growth. Results confirm that both sources of technical progress operate but that price-induced improvements appear to be substantially larger.

Acknowledgements

The author gratefully acknowledges Joyce Dargay and Dermot Gately for collaboration on other projects on this topic. These individuals are not responsible for the conclusions or any errors.

Notes

¹Data sources include International Energy Agency, Energy Statistics of OECD Countries, Paris, 2007, for OECD oil consumption. Real GDP (billion 2000 US$ using purchasing power parities) and population are derived from Source OECD data set, maintained by the Organization for Economic Co-operation and Development.

²The response to price is α₂/( − α₁) and that to income is α₃/( − α₁).

³Since the variables are in logarithms, this variable is constructed as the log(price)–log(maximum price).

⁴Due to the large price change, these computations were done as logarithmic deviations. Thus, the price-induced reduction in demand equals exp[ − 0.45 × (0.622)] = 0.755. Annualized, each demand level is 0.9918 times its previous year's level.