Price and Income Elasticities of Natural Gas Demand in Egypt: A Bound Test Approach

Abstract

AbstractThis paper provides short and long-run estimates of price and income elasticities of Egypt’s natural gas demand using the ARDL bounds testing approach to cointegration over the period 1983–2015. The results show that the long-run income and price elasticities, in absolute values, are greater than their counterparts in the short run. This result is due to the fact that consumers can modify their consumption habits and plans in the long run as a response to changes in the income or the price. Moreover, natural gas demand is more responsive to changes in income than changes in price in both the short and long run. Finally, the study examines the causality relationship between natural gas consumption and economic growth for the gas-consuming sectors in Egypt. The results indicate that there is no causal relationship between the two variables for the electricity, petroleum, and household sectors in the short-run. By contrast, there is a unidirectional causality running from natural gas consumption to the economic activity of the transportation sector and a unidirectional causality running from economic activity to natural gas consumption by the industry sector.