Short-run, Long-run and Cross Elasticities of Gasoline Demand in Brazil 1 Denisard C. O. Alves 2 dcoalves@usp.br Tel.: 55 11 3091-5865 Rodrigo De Losso da Silveira Bueno 3 rdbueno@uchicago.edu Tel.: 1 773 538-4368 Mailing Address: University of São Paulo Av. Prof. Luciano Gualberto, 908 Cidade Universitária – São Paulo – S.P. Brazil – 05508-010 Abstract: Gasoline is one of the most important of the oil-derived products. Its importance is closely related to its participation in the value of imports of many countries and in a number of cases, it is one of the determinants of their balance of payment deficit, fiscal deficit and economic growth. As opposed to most nations, Brazil has had a gasoline substitute since 1985: alcohol. Many studies have tried to estimate the income and price elasticities of the demand for gasoline in several countries. This paper extends previous studies by estimating the cross-price elasticity between gasoline and alcohol. Our findings indicate that alcohol is an imperfect substitute for gasoline even in the long run. As a consequence, the need for a new fuel substitution must be initiated long before petroleum reserves vanish. Key words: Gasoline demand; cross-elasticity of gasoline; co-integration; error correction model. JEL Classification: D1, D12, C32, Q41 São Paulo – Brazil Final Version: 03/07/02 1 We appreciate the research assistance of Fabiana Tito. Remaining errors are our responsibility. 2 University of Sao Paulo, Brazil. 3 University of Sao Paulo, Brazil and The University of Chicago.