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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.

Suggested Citation

  • Karen Fisher-Vanden & Erin T. Mansur & Qiong (Juliana) Wang, 2012. "Costly Blackouts? Measuring Productivity and Environmental Effects of Electricity Shortages," NBER Working Papers 17741, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17741
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    References listed on IDEAS

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    1. Taryn Dinkelman, 2011. "The Effects of Rural Electrification on Employment: New Evidence from South Africa," American Economic Review, American Economic Association, vol. 101(7), pages 3078-3108, December.
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    4. Roop Jyoti & Aygul Ozbafli & Glenn Jenkins, 2006. "The Opportunity Cost of Electricity Outages and Privatization of Substations in Nepal," Working Papers 1066, Queen's University, Department of Economics.
    5. Philippe Alby & Jean-Jacques Dethier & Stéphane Straub, 2013. "Firms Operating under Electricity Constraints in Developing Countries," World Bank Economic Review, World Bank Group, vol. 27(1), pages 109-132.
    6. Baisa, Brian & Davis, Lucas W. & Salant, Stephen W. & Wilcox, William, 2010. "The welfare costs of unreliable water service," Journal of Development Economics, Elsevier, vol. 92(1), pages 1-12, May.
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    Cited by:

    1. Catherine Wolfram & Orie Shelef & Paul Gertler, 2012. "How Will Energy Demand Develop in the Developing World?," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 119-138, Winter.
    2. Alastaire Sèna ALINSATO, 2015. "Economic Valuation of Electrical Service Reliability for Households’ in Developing Country: A Censored Random Coefficient Model Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 352-359.
    3. Linares, Pedro & Rey, Luis, 2013. "The costs of electricity interruptions in Spain. Are we sending the right signals?," Energy Policy, Elsevier, vol. 61(C), pages 751-760.
    4. Gerard, Francois, 2013. "What Changes Energy Consumption, and for How Long? New Evidence from the 2001 Brazilian Electricity Crisis," Discussion Papers dp-13-06, Resources For the Future.
    5. Stephen O'Connell & Allan Collard-Wexler & Hunt Allcott, 2015. "How Do Electricity Shortages A," 2015 Meeting Papers 159, Society for Economic Dynamics.
    6. Hunt Allcott & Allan Collard-Wexler & Stephen D. O'Connell, 2016. "How Do Electricity Shortages Affect Industry? Evidence from India," American Economic Review, American Economic Association, vol. 106(3), pages 587-624, March.
    7. Thiemo Fetzer, 2014. "Fracking Growth," CEP Discussion Papers dp1278, Centre for Economic Performance, LSE.
    8. Marcos Perroni & Luciano Luiz Dalazen & Wesley Vieira da Silva & Sergio Eduardo Gouvêa da Costa & Claudimar Pereira da Veiga, 2015. "Evolution of Risks for Energy Companies from the Energy Efficiency Perspective: The Brazilian Case," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 612-623.
    9. Ghani, Ejaz & Goswami, Arti Grover & Kerr, William R., 2014. "Spatial dynamics of electricity usage in India," Policy Research Working Paper Series 7055, The World Bank.
    10. Jacopo Bonan & Stefano Pareglio & Massimo Tavoni, 2014. "Access to Modern Energy: a Review of Impact Evaluations," Working Papers 2014.96, Fondazione Eni Enrico Mattei.
    11. Nyanzu, Frederick & Adarkwah, Josephine, 2016. "Effect of Power Supply on the performance of Small and Medium Size Enterprises: A comparative analysis between SMEs in Tema and the Northern part of Ghana," MPRA Paper 74196, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • P2 - Economic Systems - - Socialist Systems and Transition Economies
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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