Working Paper: NBER ID: w17741
Authors: Karen Fisher-Vanden; Erin T. Mansur; Qiong Juliana Wang
Abstract: In many countries, unreliable inputs, particularly those lacking storage, can significantly limit a firm's productivity. In the case of an increasing frequency of blackouts, a firm may change factor shares in a number of ways. It may decide to self generate electricity, to purchase intermediate goods that it used to produce directly, or to improve its technical efficiency. We examine how industrial firms responded to China's severe power shortages in the early 2000s. Fast-growing demand coupled with regulated electricity prices led to blackouts that varied in degree over location and time. Our data consist of annual observations from 1999 to 2004 for approximately 32,000 energy-intensive, enterprises from all industries. We estimate the losses in productivity due to factor-neutral and factor-biased effects of electricity scarcity. Our results suggest that enterprises re-optimize among factors in response to electricity scarcity by shifting from energy (both electric and non-electric sources) into materials---a shift from "make" to "buy." These effects are strongest for firms in textiles, timber, chemicals, and metals. Contrary to the literature, we do not find evidence of an increase in self generation. Finally, we find that these productivity changes, while costly to firms, led to small reductions in carbon emissions.
Keywords: Electricity shortages; Productivity; Environmental effects; China
JEL Codes: D24; P2; Q4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decrease in electricity factor shares (L94) | reoptimization of inputs (C61) |
| electricity shortages (L94) | increase in production costs (D24) |
| electricity shortages (L94) | decrease in carbon emissions (Q54) |
| electricity shortages (L94) | decrease in use of non-electric energy sources (Q42) |
| electricity shortages (L94) | ambiguity in net environmental impact (F64) |
| electricity scarcity (L94) | decrease in electricity factor shares (L94) |
| electricity scarcity (L94) | increase in material shares (F62) |
| electricity scarcity (L94) | changes in production decisions (D24) |