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Does competition from the informal sector affect firms’ energy intensity? Evidence from China

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  • Zhao, Nan
  • Liu, Xiaojie
  • Zhang, Zizhe

Abstract

Based on micro-evidence, this paper investigates the role of the informal sector in sustainable development. In particular, this paper examines the impact of competition from the informal sector on the energy intensity of firms based on Chinese manufacturing enterprise data. The results indicate that firms reduce their energy intensity in the face of fiercer competition from the informal sector. Competition from the informal sector has a more obvious effect on reducing energy intensity especially for firms with higher energy intensity. The subsample regression results imply prominent regional and enterprise ownership heterogeneity. The mechanism test indicates that competition from the informal sector reduces firm energy intensity by promoting the product innovation, production cost innovation, R&D (Research and Development) activities of formal firms. However, there is no evidence of a crowding-out effect, that is, competition from the informal sector has not been found to squeeze out firms’ output and reduce energy intensity.

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  • Zhao, Nan & Liu, Xiaojie & Zhang, Zizhe, 2022. "Does competition from the informal sector affect firms’ energy intensity? Evidence from China," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 130-142.
    • Handle: RePEc:eee:streco:v:62:y:2022:i:c:p:130-142
    DOI: 10.1016/j.strueco.2022.04.008
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    More about this item

    Keywords

    Informal sector; Firm energy intensity; Innovation; Crowding-out effect;
    All these keywords.

    JEL classification:

    • P28 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Natural Resources; Environment
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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