Income and Price Elasticities of Crude Oil Demand in Pakistan

Abstract

This study is an attempt to examine the income and price elasticities of crude oil demand in Pakistan using annual data from 1981 to 2013. The short-and long-run relationship was analysed by autoregressive distributed lag (ARDL) bounds testing approach. The results reveal that income and exchange rate show significant positive relationship with crude oil demand in short run as well as in long run. The analyses also show that crude oil price and domestic production have negative effect in both short and long run on crude oil demand. The income is found to be a strong determinant of crude oil demand in both short and long run. This study suggests that strategies would be formulated and adopted which may control the demand of crude oil without affecting the economic growth of Pakistan.