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Costly Blackouts? Measuring Productivity and Environmental Effects of Electricity Shortages

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  • 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17741.

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Date of creation: Jan 2012
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Handle: RePEc:nbr:nberwo:17741

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  1. Barham, Tania & Lipscomb, Molly & Mobarak, Ahmed Mushfiq, 2011. "Development Effects of Electrification: Evidence from the Geologic Placement of Hydropower Plants in Brazil," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8427, C.E.P.R. Discussion Papers.
  2. Baisa, Brian & Davis, Lucas & Salant, Stephen W. & Wilcox, William, 2008. "The Welfare Costs of Unreliable Water Service," MPRA Paper 9812, University Library of Munich, Germany.
  3. Taryn Dinkelman, 2011. "The Effects of Rural Electrification on Employment: New Evidence from South Africa," American Economic Review, American Economic Association, American Economic Association, vol. 101(7), pages 3078-3108, December.
  4. Alby, Philippe & Dethier, Jean-Jacques & Straub, Stéphane, 2011. "Let there be Light! Firms Operating under Electricity Constraints in Developing Countries," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 686, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Roop Jyoti & Aygul Ozbafli & Glenn Jenkins, 2006. "The Opportunity Cost of Electricity Outages and Privatization of Substations in Nepal," Working Papers, Queen's University, Department of Economics 1066, Queen's University, Department of Economics.
  6. Reinikka, Ritva & Svensson, Jakob, 2002. "Coping with poor public capital," Journal of Development Economics, Elsevier, Elsevier, vol. 69(1), pages 51-69, October.
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Cited by:
  1. Pedro Linares & Luis Rey, 2012. "The costs of electricity interruptions in Spain. Are we sending the right signals?," Working Papers, Economics for Energy fa05-2012, Economics for Energy.
  2. Catherine Wolfram & Orie Shelef & Paul Gertler, 2012. "How Will Energy Demand Develop in the Developing World?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 26(1), pages 119-38, Winter.
  3. Gerard, Francois, 2013. "What Changes Energy Consumption, and for How Long? New Evidence from the 2001 Brazilian Electricity Crisis," Discussion Papers, Resources For the Future dp-13-06, Resources For the Future.
  4. Hunt Allcott & Allan Collard-Wexler & Stephen D. O'Connell, 2014. "How Do Electricity Shortages Affect Productivity? Evidence from India," NBER Working Papers 19977, National Bureau of Economic Research, Inc.
  5. Thiemo Fetzer, 2014. "Fracking Growth," CEP Discussion Papers, Centre for Economic Performance, LSE dp1278, Centre for Economic Performance, LSE.

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