Empirical analysis of transportation demand for oil products in Nigeria: Using error correction approach

Abstract

This paper analyses the demand for petroleum products (gasoline and diesel) in Nigeria using time series data (1980–2013). The analyses of the trend in the consumption of products has shown that the consumption initially maintained and increasing trends, latter declined considerable with the increase in domestic prices. This underscored the important of market base pricing which will encourage efficiency, save foreign exchange, reduce fiscal burden and attract investment in the sector. Further the paper uses the Unrestricted Error Correction Models (UECM) developed by Pesaran and Shin (1999) to estimate the demand functions for oil products. The price and income elasticities for the demand function for gasoline, diesel and aggregate – are estimated in the analysis. The estimated elasticities are compared with those of similar studies in developing countries. The outcome shows that there is no significant difference between the findings of this study and previous studies in similar contexts. The results suggest that consumption of individual products is more elastic to changes in income than real prices. The income elasticities of demand are 0.6513 for the aggregate, 0.5886 for gasoline and 1.3456 for diesel. However, the price elasticities are −0.1763 for the aggregate, 0.0973 for gasoline and −0.3199 for diesel.