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Estimation Of Short-Run And Long-Run Elasticities Of Automobile Demand In India: An Empirical Analysis For The Period- 1987-2020

Author

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  • Rashmi Ranjan PAITAL
  • Subhendu DUTTA

Abstract

This paper investigates the relationship between automobile demand in India and crude oil prices and real GDP, utilizing data from 1987-88 to 2019-20. The study employs an ARDL bounds testing approach to cointegration and an error correction method (ECM) to examine the long-run and short-run behavior of the demand function. The results indicate that the estimated long-run crude price and income elasticities are -0.214 and 1.620, respectively, suggesting that automobile demand in India is inelastic with respect to crude oil prices and elastic with respect to income. The short-run elasticity to crude oil prices is found to be low and comparatively stronger, while the income elasticity is inelastic. Overall, the findings suggest that changes in automobile demand are more responsive to changes in the country's GDP than to crude oil prices. This is partly due to the volatility of crude oil prices, while income remains relatively stable across periods, mainly influencing automobile demand in the country.

Suggested Citation

  • Rashmi Ranjan PAITAL & Subhendu DUTTA, 2023. "Estimation Of Short-Run And Long-Run Elasticities Of Automobile Demand In India: An Empirical Analysis For The Period- 1987-2020," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 23(2), pages 113-126.
    • Handle: RePEc:eaa:aeinde:v:23:y:2023:i:2_6
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    Keywords

    Demand function; Elasticity of demand; ARDL; automobile demand; India.;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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