FEEM-IEFE Joint Seminar on “The Impact of Energy Price Increases on Firms in Developing Countries”
12:30 - 14:00
The links between environmental policies, innovation/invention and socio-economic performance have been variously analyzed at micro and meso levels through quantitative lenses. Though the literature that investigates the effects of energy prices and environmental policies has expanded, there is still room for original analyses when addressing the effects on economic performances. The main reason is the still existing relative larger development of studies that focus on innovation drivers and diffusion, rather than the effects of policies and innovation on economic performances.
The present study contributes to filling some knowledge gaps by providing novel evidence on the impacts of energy price fluctuations on firm performances in developing countries, using World Bank Enterprise Survey (WBES) data on 11 upper-middle income countries. It uses World Bank Enterprise Survey (WBES) data for countries with repeated surveys to examine how firms’ performance change in response to changes in energy taxes and prices. The advantage of this approach is two-fold. First, it can provide evidence for a substantial number of developing countries, enhancing the results’ external validity. Second, it allows exploiting the variation of energy taxes and prices across countries and over time to identify relevant firm responses. However, the wider country coverage comes at a cost in terms of precision.
The WBES data does not identify firms’ energy mix, which prevents one from observing to what extent firms adjust to price changes by modifying their energy mix or reducing the energy intensity of their output. The results suggest that an increase in energy prices generally has a positive impact on different measures of firm performance. The effects are tested over different measures of firm performances/competitiveness as dependent variable (logs of total employment, log of sales per employee, log of labor productivity, profits over sales and share of exports in sales). The results show that higher energy prices might relate to better economic performance. This outcome seems consistent with the strong version of the Porter hypothesis, i.e. the idea that an improvement in production efficiency prompted by higher energy prices more than compensate the increase in production costs due to environmental regulation. This result is particularly strong for productivity indicators (with 1 percent statistical significance) and profitability as well.
This seminar has been jointly organized by FEEM and IEFE, Bocconi University.