Demand for liquefied petroleum gas (LPG) in Kenya : 1971-2005
This study provide evidence on the empirical determinant of LPG demand in Kenya using thirty five-year time series data over 1971-2006. The estimated model was a single regression equation with demand of Liquefied Petroleum Gas (measured as actual yearly LPG consumption) as the dependent variable and explanatory variables being price of crude oil, electricity tariff, urban population, per capita GDP, price of LPG, domestic revenue, price of kerosene and inflation are exogenous and explain demand of LPG. The model tests indicate that the estimated model was the "best" model on grounds of both theory and goodness of fit. The results of the study showed that in the short and long run urban population, domestic revenue, per capita GDP, LPG previous demand and inflation are determinant of demand of LPG. However, crude oil, LPG price, kerosene price and electricity tariff coefficients have correct sign though insignificant. These variables' coefficients were inelastic except for LPG price coefficient. The estimated long-run fuel price elasticities of demand of LPG were smaller than the short run elasticities, indicating that economic units do not exercise their discretion in fuel and equipment choice in the long-run. The insignificance of these coefficients reflected the inefficiency in the energy sector and the oligopolistic structure of the sector. Policy approaches for higher LPG demand should be geared toward strengthening the LPG legal framework and development of LPG infrastructure to enhance competition within the LPG market; and ensuring macroeconomic stability and consistency in macroeconomic policies to favor investment in LPG infrastructure.