Too Much Energy : The Perverse Effect of Low Fuel Prices on Firms
This paper provides novel evidence on the impact of changes in energy prices on manufacturing performance in two large developing economies -- Indonesia and Mexico. It finds that unlike increases in electricity prices, which harm plants' perfo...
| Main Authors: | , , , , |
|---|---|
| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/670351570710975641/Too-Much-Energy-The-Perverse-Effect-of-Low-Fuel-Prices-on-Firms http://hdl.handle.net/10986/32584 |
| Summary: | This paper provides novel evidence on
the impact of changes in energy prices on manufacturing
performance in two large developing economies -- Indonesia
and Mexico. It finds that unlike increases in electricity
prices, which harm plants' performance, fuel price
hikes result in higher productivity and profits of
manufacturing plants. The results of instrumental variable
estimation imply that a 10 percent increase in fuel prices
would lead to a 3.3 percent increase in total factor
productivity for Indonesian and 1.2 percent for Mexican
plants. The evidence suggests that effects are driven by the
incentives that fuel price increases provide to plants
towards replacing inefficient fuel-powered with more
productive electricity-powered capital equipment. These
results help to re-evaluate the policy trade-off between
reducing carbon emissions and improving economic
performance, particularly in countries with large fuel
subsidies such as Indonesia and Mexico. |
|---|