To Pass (or Not to Pass) Through International Fuel Price Changes to Domestic Fuel Prices in Developing Countries: What Are the Drivers?

September 25, 2020

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Kangni R Kpodar, and Patrick A. Imam To Pass (or Not to Pass) Through International Fuel Price Changes to Domestic Fuel Prices in Developing Countries: What Are the Drivers?, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

While many developing countries limit the international fuel price pass through to domestic fuel prices, others do not. Against this backdrop, we examine the factors that determine whether governments allow international fuel price changes to be passed through to domestic prices in developing countries using a dataset spanning 109 developing countries from 2000 to 2014. The paper finds that the pass-through is higher when changes in international prices are moderate and less volatile. In addition, the flexibility of the pricing mechanism allows for higher pass-through while exchange rate depreciation and lower retail fuel prices in neighboring countries inhibit it. The econometric results also underscore the fact that countries with inflation tend to experience lower pass-through, whereas those with high public debt exhibit larger pass-through. Finally, no evidence is found that political variables or environmental policies matter with regard to fuel price dynamics in the short-term. These findings, which are consistent across fuel products (gasoline, diesel and kerosene), allow us to draw important policy lessons for fuel subsidy reforms.

Subject: Consumption, Energy subsidies, Expenditure, Fuel prices, Inflation, National accounts, Oil prices, Prices

Keywords: Consumption, Country, Crude oil price dynamics, Energy subsidies, Fuel price, Fuel price change, Fuel price increase, Fuel price liberalization, Fuel prices, Fuel pump price flexibility, Fuel subsidies, Global, Government, Government price regulation, Inflation, Input cost, Kerosene price, Oil prices, Pass-through, Pass-through coefficient, Price, Price differential, Price flexibility, Price gap, Retail fuel prices, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/194
Stock No:

WPIEA2020194
ISBN:

9781513557625
ISSN:

1018-5941

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