We study the effect of countries’ energy abundance – relative to labour – on trade and sector activity, conditional on sector’s energy intensity, using an unbalanced panel with 12 high-income countries from Europe, America and Asia, 10 broad sectors, and years 1970-1997. We find that (i) energy abundant countries have a high level of energy embodied in exports relative to imports. (ii) For energy intensive sectors, net exports are larger in energy abundant countries, and (iii) sector activity is higher in these countries. (iv) The trade and location effects increase with a sector’s exposure to international trade. In short, energy is a major driver for sector location through trade. We show that capital and energy are complements and use various controls in our analysis. Norway and Italy are at the two opposite ends of the spectrum. Norway (Italy) is the country that is least (most) dependent on energy imports, has the highest (lowest) levels of energy use per employee, and specializes in and exports from energy-intensive (extensive) sectors while importing in energy-extensive (intensive) sectors. The implications of our results for the carbon leakage and climate change policy literature are discussed.

This seminar has been jointly organized by FEEM and IEFE, Bocconi University.