The Price and Income Elasticities of Oil Demand in the Industrial Sector: The Case of OECD Countries

Abstract

The determination of an important energy source of oil demand elasticity plays a role in measuring the impact on the design of appropriate energy policy and energy demand of these policies. The purpose of this study is to estimate price and income elasticities of industrial oil demand in OECD countries for the period 1997-2013. Firstly, the literature relating sectoral energy consumption in OECD countries were reviewed. And then, the determinant of sectoral energy consumption in OECD countries was discussed. We examined the energy demand models in the relevant literature to create an empirical analysis framework. We use dynamic panel data methods to estimate industrial oil demand elasticities in OECD countries after determining the appropriate model. According to the results, the demand for energy in the industrial sector of the 1% increase in oil prices, while reducing the rate of 1.76%, oil consumption of an increase of 1% will occur in the industrial production index also shows that increased by 1.34%. According to these results, in terms of price and income elasticity, demand for oil in the industrial sector in OECD countries is elastic.