An empirical analysis of petroleum demand for Indonesia: An application of the cointegration approach

This paper uses selection criteria from various models in a bounds testing approach to cointegration to estimate the price and income elasticities of demand for total petroleum products (gasoline and diesel) and gasoline share in total products in Indonesia. The results suggest that both total products and gasoline share estimates are more responsive to changes in income than changes in the real price of petroleum products. These results have important policy implications as they suggest that policy makers may need to use market-based pricing policies and other policies such as public enlightenment in addition to regulations like minimum energy efficiency standards to promote efficiency and conservation and curb the rising consumption of petroleum products in Indonesia.