Price Elasticity of Gasoline Smuggling: A Semi-Structural Estimation Approach

45 Pages Posted: 19 Apr 2017 Last revised: 27 Mar 2018

Hamed Ghoddusi

Stevens Institute of Technology - School of Business

Nima Rafizadeh

Sharif University of Technology - Graduate School of Management and Economics

Mohammad Hossein Rahmati

Sharif University of Technology

Date Written: April 17, 2017

Abstract

We estimate the price elasticity of the demand for gasoline smuggling in Iran. For this purpose, we employ a detailed panel of monthly gasoline consumption data from 160 distribution hubs during the period 2005-2014. We apply two different approaches which are diff-in-diff and panel data estimations. The results suggest that the foreign-to-home gasoline price ratios have a significant impact on the time-varying elasticity of demand. This finding supports the hypothesis that an increase in domestic gasoline prices will significantly reduce the demand for smuggling. In addition, as the distance of a region from its closest higher-price neighboring country diminishes, the price elasticity of demand for gasoline smuggling for that region declines as well. Finally, we find that when the ratio of foreign to domestic prices is higher, the gasoline demand sensitivities to price in neighboring countries go up. Our work offers new insights regarding the welfare impact of removing fuel subsidies and modifying fuel pricing policies.

Keywords: Gasoline Smuggling , Fuel Subsidy Removal, Price Elasticity, Gasoline Price Differential, Panel Data Estimation

JEL Classification: C23, F15, H77, Q41

Suggested Citation

Ghoddusi, Hamed and Rafizadeh, Nima and Rahmati, Mohammad Hossein, Price Elasticity of Gasoline Smuggling: A Semi-Structural Estimation Approach (April 17, 2017). Stevens Institute of Technology School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=2954034 or http://dx.doi.org/10.2139/ssrn.2954034

Hamed Ghoddusi (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

HOME PAGE: http://www.ghoddusi.com

Nima Rafizadeh

Sharif University of Technology - Graduate School of Management and Economics ( email )

Tehran
Iran

Mohammad Hossein Rahmati

Sharif University of Technology ( email )

Graduate School of Business and Economics
Sharif University of Technology
Tehran
Iran
+98-21-6604-9195 (Phone)

HOME PAGE: http://gsme.sharif.edu/~rahmati/

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