ROAD TRANSPORT ENERGY DEMAND IN AUSTRALIA - A COINTEGRATION APPROACH

A cointegration framework is used to examine the short-run and long-run characteristics of energy demand in the Australian road transport sector. A lagged endogenous equation based on a partial adjustment process is proposed and estimated. Results indicate that energy demand, output and real energy prices ave integrated of order 1 and cointegrated. The long-run output and price elasticities of energy demand are estimated to be 0.52 and -0.12 respectively. Causality tests reveal a bidirectional causality path between output and energy demand and a unidirectional path from energy consumption to prices. No other causality paths between output, prices and energy demand are detected. The short-run output elasticity of energy demand is estimated to be 0.25 based on an error-correction model. The short-run price elasticity is found to be insignificant. The inertia parameter is 0.48 corresponding to 95% of the demand adjustment occurring after five periods. The results are compared with previous findings and the variations ave partially attributed to the structural changes in the road transport sector in the 1980s, some of which are discussed.