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

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 countr...

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Bibliographic Details
Main Author: Kpodar, Kangni
Other Authors: Imam, Patrick
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2020
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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245 0 0 |a To Pass (or Not to Pass) Through International Fuel Price Changes to Domestic Fuel Prices in Developing Countries: What Are the Drivers?  |c Kangni Kpodar, Patrick Imam 
260 |a Washington, D.C.  |b International Monetary Fund  |c 2020 
300 |a 42 pages 
651 4 |a United States 
653 |a Macroeconomics: Consumption 
653 |a Fuel prices 
653 |a Public Finance 
653 |a Deflation 
653 |a Saving 
653 |a Economics 
653 |a Energy subsidies 
653 |a Inflation 
653 |a Wealth 
653 |a Prices 
653 |a Energy: Demand and Supply 
653 |a Macroeconomics 
653 |a Environmental Taxes and Subsidies 
653 |a Taxation and Subsidies: Externalities 
653 |a Redistributive Effects 
653 |a Energy: Government Policy 
653 |a Expenditure 
653 |a Price Level 
653 |a National accounts 
653 |a Mining, Extraction, and Refining: Hydrocarbon Fuels 
653 |a Expenditures, Public 
653 |a Energy industries & utilities 
653 |a Consumption 
653 |a Oil prices 
700 1 |a Imam, Patrick 
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520 |a 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