Price and Income Elasticities of Domestic Petroleum Consumption in Nigeria

Authors

1 Department of Economics, Baze University of Abuja, Nigeria.

2 Department of Economics, University of Abuja, Nigeria.

Abstract

This paper estimates the price and income elasticities of domestic petroleum consumption in Nigeria using the Johansen cointegration and Vector error correction model approaches.  The paper used annual time series data for domestic petroleum consumption, petroleum price and real income over the period 1985 to 2018. The result indicates the existence of a long run cointegration relationship between domestic petroleum consumption and the independent variables. The estimates of the long run price and income elasticities are -0.212 and 0.293 which suggest that petroleum consumption is both price and income inelastic in Nigeria. The short run analysis indicates that the elasticity coefficient of price is insignificant while income is negative   -0.628 but significant. The result of the Granger causality test shows evidence of short run and long run unidirectional causality running from income to domestic petroleum consumption. The implication of the results is that there is need for strong policy that will improve the efficiency of the electricity sector and promote the use of power saving machines and technology in order to reduce domestic petroleum consumption that may results from increase in per capital income in Nigeria.

Keywords