The demand for road diesel in Canada

In this paper, we estimate the demand for road diesel in Canada using aggregate annual data for the period 1986-2008. Using a partial adjustment model (PAM), we find short and long run price elasticities of − 0.43 and − 0.8 respectively. However, using cointegration techniques, we obtain price elasticities that are 30 to 50% lower. The short run elasticity with respect to GDP per capita is evaluated at 0.5 with the PAM and 1.55 with cointegration. In the long run, both estimation techniques indicate an income elasticity around 0.9. Our results underline the importance of controlling for the expansion of the primary sector which has been characterizing the Canadian economy in the 2000s.