Energy Abundance, the Geographical Distribution of Manufacturing, and International Trade

The next decade will see a pressing demand for countries to deliver a low-carbon future while at the same time ensuring they can meet an ever growing demand for energy. In this paper we investigate how he spatial distribution of endowments of energy resources across Chinese provinces influence the location of firms and their subsequent exports. Employing a pseudo-endowment approach, we measure energy abundance using three-dimensional input data at the province-sector-year level from 2006 to 2010. Our results suggest that energy abundance has a positive and significant impact on the location of industrial production and subsequent exports, especially for energy intensive sectors. On average, a 70 yuan/MWh industrial electricity price rise in a province leads to a 2.67% reduction in production share. On average, a ten percentage point change in energy abundance leads to 3.5% change in the share of production, and a 2.6% change in the share of net exports. Further analysis explores how an uneven distribution of resource reserves impacts the location of production using data on coal mine location. Our results shed light on the role that energy abundance plays in shaping a country’s industrial structure and trade patterns.