Underlying Trends and Seasonality in Kosova Gasoline Demand: A Time-Series Analysis

Valon Kastrati
European University of Tirana

Abstract

This paper analyzes the demand for fuels in Kosovo automotive sector, using the data to estimate price and income elasticities for all the available fuels in the automotive sector: gasoline, automotive gas oil distributed among months of the year. These estimates can be very useful in predicting the overall impacts of price policies designed to reduce fuel consumption and to address concerns of carbon emissions or energy security. The paper aimed at estimating the price and income elasticities of automotive fuels demand in Kosovo. The analysis of the expenditure allocation process among the gasoline, Gas oil and LPG was carried out through the estimation of a linear approximation of an ECM model. This model is very convenient due to its ability to fulfill much of the desired theoretical properties of demand, being at the same time parsimonious regarding the number of parameters. Furthermore, the equations to be derived from ECM are linear in parameter, which allows the use of econometric methods widely available in terms of testing and estimating procedures. Uncompensated (Marshallian) price and expenditure elasticities were calculated from estimated parameters of the ECM. The results show that all own-price elasticities are negative and statistically significant. The own- price elasticity of LPG is most elastic. Moreover, expenditure elasticities for gasoline and gas oil are positive and significant at the 5 percent significance level; the expenditure elasticity for gasoline is the most elastic. The estimations here produced suggest that LPG is inferior good. Overall this paper tried to improve the understanding of the consumer’s behavior and their possibilities and criteria to choose automotive fuel in Kosovo. Empirical results indicate all own-price elasticities are negative and significant at 5% level. The own-price elasticity for gas oil, gasoline and LPG were estimated by about -0.22, -1.01 and -3.58, respectively. The findings also show that gasoline and gas oil are normal goods and LPG being an inferior good. Keywords: Automotive fuel, Gasoline, Elasticity, ECM model.


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