Scientific Journal Of King Faisal University: Basic and Applied Sciences
Scientific Journal of King Faisal University: Humanities and Management
Impact of Pricing Policy Changes on Gasoline Domestic Demand in Saudi Arabia: An Analytical Study of Al-Ahsa Governorate
(Abeer Abdulla Kinawy, Hafsa Ali Morci and Olfat Ali Melok)Abstract
In Saudi Arabia, the price of fuel products is one of the lowest in the world due to the adopted subsidizing
energy price policy. In addition, Saudi Arabia is the largest consumer of fuel in the world with annual increasing
rate of 8% per year. This is reflected in inefficient use of resources that can be used in developmental projects to
enhance economic growth.
This paper aimed at identifying the main causes of increasing gasoline domestic demand by estimating the
demand function at national level using secondary data (time-series data), and at Al-Ahsa governorate level using
primary data (questionnaire). The study used double log multiple regression model and Chow test. The estimated
model was used to predict the effect of partial or total removal of gasoline subsidy on gasoline consumption.
The study reveals that, the numbers of private cars, roads lengths, real price of gasoline and real income are the
main factors affecting gasoline consumption. In addition, it shows that gasoline demand is inelastic, according to
demand price elasticity. Moreover, the study indicated that the change of gasoline price policy would be to some
extent an effective policy to rationalize consumption. Hence, an increase in real price of gasoline by more than
100%, would lead to a decrease in consumption by more than 25%.
Based on its result, the study recommends compensation of low-income families, being the most affected, in
case of reducing price subsidy of gasoline in addition to reducing domestic consumption of gasoline. The study
recommends the expansion of public transportation within and between the Kingdom governorates
Key Words: AL-Ahsa, Chow test, Gasoline consumption, Prediction, Pricing policy, Theil’s μ-statistic.
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