Business Management Dynamics

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ISSN: 2047-7031

bmd Business and Management Dynamics bmd
ISSN: 2047-7031  
Volume  3   Issue 1  2013  
Article Abstract
Price and Income Elasticities of Oil Demand in Tanzania: An Autoregressive Approach
Keywords:  Oil Demand, Demand Elasticity, Autoregressive, Import, Tanzania.
Benedict Baraka Stambuli
Oil is playing a fundamental role in day-to-day economic activities in Tanzania. The demand for oil in the country has been increasing rapidly. Tanzania has been importing oil for almost all her oil needs. Over the years, this oil importation has been accompanied with imported inflation and persistent balance of trade deficit in the country. So, it is the purpose of this study to investigate on how oil demand in Tanzania responds to change in international oil prices and national income so as to control this oil importation without debilitating the appropriate functioning of the economy in the long run. Nerlove's Partial Adjustment Model (PAM) was adopted to estimate price and income elasticities of oil demand in Tanzania with the use of annual time series data (1972-2010). Also, this paper employed Chow test to examined structural break in the oil demand function. The empirical findings insinuated no structural break in the estimated oil demand equation. Moreover, the paper found out that in the short-run the demand for oil was both price and income inelastic while in the long-run demand for oil was income elastic and price inelastic. This implied that oil demand in Tanzania was more sensitive to income changes relative to oil price changes. There is a need for Tanzania to opt for bio-fuels and speed up the exploration and later extraction of the discovered oil and gas fields. This will enable the country to save more foreign currencies which are spent on oil importation.
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