Empirical Analysis of Gasoline Demand in Kuwait

Abstract

The objective of this paper was to investigate the determinants of gasoline demand in Kuwait and to assess their impact on consumption. We used the Standard Demand Equation (SDE), the Cointegration Techniques, and the Error Correction Model (ECM) on annual time-series data for Kuwait from 1972 to 2018. We obtained a price elasticity of -0.341 in the long-run, while the short-run price elasticity was insignificant, indicating that changes in prices had minimal or no effect on gasoline consumption in Kuwait. This may be at least in part due to consumers shifting their consumption from a higher grade of gasoline to a less expensive grade when prices changed. We also found that the income elasticity is 0.175 in the short-run and 0.234 in the long-run, indicating that income will be more effective in changing consumption in the long-run. We conclude that reducing gasoline subsidies could result in substantial governmental savings, but this may have an inequitable impact on low-income Kuwaitis.