Investigation of the Factors Affecting Gasoline Consumption in Tehran

In this research study, an Autoregressive Distributed Lag (ARDL) cointegration framework is applied over the time period of 1972-2009 in order to examine the short run and long run characteristics of gasoline demand in the transport sector in Tehran. The results indicate that the amount of gasoline consumed per car, per capita income and real price of gasoline are integrated of order 1. The ARDL bounds test also confirms that these variables are cointegrated. The long run income and price elasticity of gasoline demand are estimated to be 1.28 and -0.11 respectively. The short run income elasticity is estimated to be 0.78 based on an ARDL error correction model, while the short run price elasticity is found to be -0.11. The adjustment parameter is 0.61, which implies that a demand adjustment of around 0.61 takes place in any year. This means that around 95% of the demand adjustment occurs after three periods. It is hoped that these results will assist in prediction of transport fuel requirements and fluctuations, which is vital in an age where fossil fuel supply and demand must be carefully managed.