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Energy price variation and competitiveness: Firm level evidence from Indonesia

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  • Rentschler, Jun
  • Kornejew, Martin

Abstract

This paper uses firm survey data from the manufacturing and mining sectors in Indonesia, and investigates the extent to which energy prices affect competitiveness (proxied by profitability). Persistent regional price differences due to Indonesia's insular geography enable this study to show that energy prices have a small (but statistically significant) adverse long-run effect on competitiveness – though different energy types matter in different sectors. By estimating cross and own price elasticities and Uzawa-Allen partial elasticities of (inter-fuel) substitution, this study also shows that firms have the ability to respond to higher energy prices by adjusting their energy mix, i.e. substituting certain energy goods for others. Moreover, this study shows that firms also respond to higher energy prices by increasing energy efficiency, and by passing on costs to end-users. Nevertheless, these response measures are not sufficient to fully mitigate the adverse effect of energy prices on firms. Based on these results, policy recommendations are offered which are of immediate relevance for the design of energy pricing reforms.

Suggested Citation

  • Rentschler, Jun & Kornejew, Martin, 2017. "Energy price variation and competitiveness: Firm level evidence from Indonesia," Energy Economics, Elsevier, vol. 67(C), pages 242-254.
    • Handle: RePEc:eee:eneeco:v:67:y:2017:i:c:p:242-254
    DOI: 10.1016/j.eneco.2017.08.015
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    2. Beöthy, Ákos & Kácsor, Enikő & Bartek-Lesi, Mária & Kerekes, Lajos & Kotek, Péter, 2019. "Energiaköltségek hatása a feldolgozóipar költség-versenyképességére [Energy costs and cost competitiveness in the manufacturing sector]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 256-285.
    3. Mr. Kangni R Kpodar & Ms. Stefania Fabrizio & Kodjovi M. Eklou, 2019. "Export Competitiveness - Fuel Price Nexus in Developing Countries: Real or False Concern?," IMF Working Papers 2019/025, International Monetary Fund.
    4. Mohd Alsaleh & Azeem Oluwaseyi Zubair & Abdul Samad Abdul‐Rahim, 2020. "The impact of global competitiveness on the growth of bioenergy industry in EU‐28 region," Sustainable Development, John Wiley & Sons, Ltd., vol. 28(5), pages 1304-1316, September.
    5. Miria A. Pigato, 2019. "Fiscal Policies for Development and Climate Action," World Bank Publications - Books, The World Bank Group, number 31051, December.
    6. Zarepour, Z. & Wagner, N., 2022. "How manufacturing firms respond to energy subsidy reforms?," ISS Working Papers - General Series 696, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    7. Lin, Boqiang & Xu, Mengmeng, 2019. "Good subsidies or bad subsidies? Evidence from low-carbon transition in China's metallurgical industry," Energy Economics, Elsevier, vol. 83(C), pages 52-60.
    8. Zarepour, Zahra & Wagner, Natascha, 2023. "How manufacturing firms respond to energy subsidy reforms? An impact assessment of the Iranian Energy Subsidy Reform," Energy Economics, Elsevier, vol. 124(C).
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    10. Ivan Faiella & Alessandro Mistretta, 2022. "The Net Zero Challenge for Firms’ Competitiveness," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 83(1), pages 85-113, September.
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    More about this item

    Keywords

    Energy prices; Firms; Competitiveness; Fossil fuel subsidies;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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