Gasoline demand in Saudi Arabia: are the price and income elasticities constant?

Figures & data

Table 1. Summary of reviewed studies.

					Price elasticity		Income elasticity
Study	Country (group)	Period	Study type	Methodology	SR	LR	SR	LR
Totto and Johnson (1983)	OPEC	1970–1979	T	MOLS	n/a	−0.09*	n/a	1.02*
Al-Sahlawi (1988)	Saudi Arabia	1970–1985	T	OLS	−0.08	−0.67	0.11	0.92
Al-Faris (1992)	Saudi Arabia	1970–1990	T	OLS/PAM	−0.08	−0.30	0.02	0.07
Eltony (1994)	GCC	1975–1989	P	CFE/PAM	−0.11 to −0.09	−0.13 to −0.11	0.21 to 0.41	0.23 to 0.48
Eltony Nagy (1996)	GCC	1975–1993	P	CFE/PAM	−0.11	−0.17	0.31	0.48
	G
Al-Faris (1997)	Saudi Arabia	1970–1991	T	OLS/PAM	−0.09	−0.32	0.03	0.11
Al-Sahlawi (1997)	Saudi Arabia	1971–1995	T	OLS/PAM	−0.16	−0.80	0.30	1.50
Chakravorty et al. (2000)	Saudi Arabia	1972–1992	T	OLS/PAM	−0.08	−0.52	0.10	0.66
Dahl (2012)	120 countries, including Saudi Arabia	Different time intervals	T and P	Review of previous studies	n/a	−0.09*	n/a	1.02*
Al Yousef (2013)	GCC	1980–2010	P	Panel FMOLS & DOLS	n/a	−0.36 to −0.28*	n/a	0.55 to 0.56*
Burke and Nishitateno (2013)	132 countries, including Saudi Arabia	1995–2008	P	PPOLS	n/a	−0.5 to −0.2	n/a	0.95 to 1.10
Arzaghi and Squalli (2015)	32 fuel-subsidizing countries including Saudi Arabia	1998–2010	P	FE and RE/PAM	−0.05	−0.25	0.16	0.81
Atalla, Gasim, and Hunt (2018)	Saudi Arabia	1981–2015	T	STSM	−0.10 ^g -0.09^ng	−0.15 ^g -0.09^ng	ins	0.15 ^g 0.62^ng

OPEC, Organization of the Petroleum Exporting Countries; T, time series; OLS, ordinary least squares method; MOLS, modified OLS; FMOLS, fully modified OLS; DOLS, dynamic OLS; PAM, partial adjustment model; P, panel; CFE, country fixed effects; FE, fixed effects; RE, random effects; STSM, structural time series model; GCC, Gulf Council countries; PPOLS, pooled panel OLS; SR, short-run; LR, long-run. ”*” means that the reported coefficient is for Saudi Arabia; “g” and “ng” stand for elasticities with GDP and non-oil GDP, respectively; ins, insignificant.

Table 2. Descriptive statistics of the variables.

	Mean			Standard deviation			Coefficient of variation, %
	1980–2017	1980–2008	2009–2015	1980–2017	1980–2008	2009–2015	1980–2017	1980–2008	2009–2015
MGP	0.67	0.60	0.90	0.14	0.06	0.06	21	11	7
DI	24.75	20.65	37.30	9.22	5.87	4.34	37	28	12
RP	0.63	0.67	0.47	0.26	0.29	0.03	41	43	6

MGP is in thousands in liters, DI is in thousands of SAR, RP is in SAR/Liter. MGP and DI are in per capita terms.

Table 3. Significance test for TVCs.

	Income Coefficient
Test Statistics	Critical values
	1%	5%	10%
441.45	16.81	12.59	10.65
	Price Coefficient
Test Statistics	Critical values
	1%	5%	10%
151.97	15.09	11.07	9.24

For the income coefficient p = 2, q = 2, df = p + 2q = 6; for the price coefficient p = 1, q = 2, df = p + 2q = 5; p is the number of polynomials, and q is the number of trigonometric pairs in the TVC specification.

Table 4. Long-run estimation results.

			FC	Polynomials (p = 2)		Trigonometric pairs (q = 2)
			1	$\frac{t}{T}$	${\left(\frac{t}{T}\right)}^2$	$cos\left(2\pi \frac{t}{T}\right)$	$sin\left(2\pi \frac{t}{T}\right)$	$cos\left(4\pi \frac{t}{T}\right)$	$sin\left(4\pi \frac{t}{T}\right)$
Corresponding coefficients
		$\epsilon$(intercept)	${\theta }_0$	${\theta }_1$	${\theta }_2$	${\theta }_3$	${\theta }_4$	${\theta }_5$	${\theta }_6$
İncome	coefficients	−7.742	−0.027	0.213	−0.094	0.022	−0.040	0.022	-0.013
	p-values	(0.000)	(0.724)	(0.558)	(0.766)	(0.461)	(0.105)	(0.004)	(0.263)
Price	coefficients		0.013	−0.347		0.030	−0.189	0.042	-0.084
	p-values		(0.914)	(0.119)		(0.339)	(0.032)	(0.076)	0.041

Notes: FC, fixed coefficient; which is the coefficient of the variable without a TVC; p-values are in parenthesis. We also included pulse dummy (dp1989) taking 1 in 1989 and 0 otherwise.

Figure 1. Plots of variables.

Figure 2. Time-varying income elasticity.

Figure 3. Time-varying price elasticity.

Figure 4. Comparison of income elasticity in different periods, with per capita income and government transfers (normalized scale).

Figure 5. Time-varying price elasticity and gasoline price (normalized scale).

Figure 1A. Plots of (a) recursive residuals, (b) CUSUM and (c) CUSUM of squares tests for stability.

Table 1A. The ADF unit root test results.

	Variables	Level	k	First difference	k
Intercept	mgpt	-0.029	0	-2.667*	1
	rpt	-1.976	0	-4.553***	0
	dit	-0.211	0	-5.076***	0
Intercept and trend	mgpt	-2.957	2	-5.508***	0
	dit	-2.016	0	-5.950***	0
	rpt	-1.697	0	-4.616***	0

Notes: Maximum lag order is set to two and the optimal lag order (k) is selected based on Schwarz info criteria; ***, and * indicate a rejection of the null hypotheses at the 1% and 10% significance levels, respectively. The critical values are taken from MacKinnon (1996).

Table 2A. Cointegration test results.

Variable addition test
Distribution	Result	Critical values
Chi-square	test statistics	1%	13.18
df = 4	9.47	5%	9.49
		10%	7.78

Notes: df = degree of freedom. df is 4 as we used four trend variables for the VAT test.

Table 3A. Short-run final specification.

variables	ectt-1	d(incpt-1)	d(rpt)	d(mgpt-2)	d(dp1989)
coefficients	-0.766		-0.126	0.241	-0.103
p-values	(0.000)		(0.000)	(0.000)	(0.000)
	SE of Regression	R-squared	Log likelihood	df	k
	0.017	0.888	97.392	30	5
	LM test	White test	JB test	RESET test
	0.313	1.748	2.240	0.135
	(0.854)	(0.155)	(0.326)	(0.716)

Notes: ect = error correction term; SE of regression = standard error of regression; df = degree of freedom; k = number of observations; LM test=Breusch-Godfrey serial correlation LM test (lags = 2); White test = White test for heteroskedasticity; JB test = Jargue-Bera goodness-of-fit test; RESET test=Ramsey RESET test for misspecification.

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