MA Economics

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An eonometric analysis of the substitution effects of ethanol on the consumption of gasoline fuel in the Philippines
(2013-03) Cantos, Jose Alfred B.; Capuno, Joseph J.
The use of fuel ethanol has increased significantly in the Philippines especially since a law was implemented requiring a 10% blend to unleaded gasoline. Sugarcane and cassava have been the major inputs in its production. This study focused on the impacts of E10 on the price of gasoline and how this will offset gasoline price increase. Both gasoline and E10 are considered consumption substitutes. However, they are also production complements as gasoline is a major input in the production of E 10, 90% in fact. Using fixed-effect panel data model from second stage least squares estimation, the impact of ethanol use on retail regular gasoline prices is quantified. The analysis shows a positive relationship indicating that a 1 peso increase in the price of ethanol inputs to the production of El 0 increases the price of gasoline by 0.85 pesos per liter. This positive coefficient of the price of E10 is consistent with theory that the prices of substitutes move in the same direction. Hence, an increase in the price of E10 will drive E10 consumers to demand more gasoline instead which in turn will push up its own price.