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Complementary Inputs and Industrial Development: Can Lower Electricity Prices Improve Energy Efficiency?

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  • Gregor Singer

Abstract

The transition from traditional labor intensive to modern capital intensive production is a key factor for industrial development. Using half a million observations from Indian manufacturing plants, I analyze the effects of a secular decrease in industrial electricity prices through the lens of a model with technology choices and complementarities between electricity and capital inputs. Using instrumental variables, I show how lower industrial electricity prices can increase both labor productivity and electricity productivity. Apart from positive effects on firm economic and environmental performance, cost-price pass through significantly benefitted consumers, and the productivity improvements limited increases in carbon emissions.

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  • Gregor Singer, 2024. "Complementary Inputs and Industrial Development: Can Lower Electricity Prices Improve Energy Efficiency?," CESifo Working Paper Series 10944, CESifo.
    • Handle: RePEc:ces:ceswps:_10944
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    More about this item

    Keywords

    industrial development; energy efficiency; electricity productivity; labor productivity; electricity prices; coal prices; incidence; climate policy;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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