The motorcycle to car ownership ratio: Inflation and it's indirect effects

Abstract

In the initial phase of economic development, motorcycle ownership rise with the growing demand in transportation. However, as income rose and perhaps due to convenience, safety and prestige, motorists opt to purchase car than motorcycle. Under high inflation, motorists tend to choose cheaper mode of transportation, like motorcycles and mopeds, which in turn leads to higher ownership ratio of motorcycle to passenger car (MTPC). On the other hand, economic studies indicate that the correlation between inflation and economic development is nonlinear; it is negative for high levels of inflation, but positive for low levels of inflation. Consequently, this may lead to a rise in MTPC ownership ratio at some levels of income and a decline at others. This study focused on understanding how inflation affects the MTPC ownership ratio indirectly and the factors underlie this relationship. The data used in this analysis contained a sample of 76 countries at various levels of economic development growth over the 51-year period between 1963 and 2013 using panel data analysis. The indirect effect of the inflation on the MTPC ownership ratio varied in accordance with increases in the inflation. Policy implications of the study were discussed in the conclusion part of the study.