Does Outsourcing Reduce the Cost of Blackouts?
Evidence from Chinese Enterprises


Karen Fisher-Vanden, Erin T. Mansur, and Qiong (Juliana) Wang


Previously Titled: “Costly Blackouts? Measuring Productivity and Environmental Effects of Electricity Shortages”


      Paper in submission.

      Working Paper, January 2013.

      NBER Working Paper 17741, January 2012.

      SSRN WPS 1978446, January 2012.




In many developing countries, unreliable inputs can significantly limit firms' productivity. With increasing frequency of blackouts, firms may use multiple responses, like self generating electricity, or purchasing intermediate goods that it used to produce directly. We examine how Chinese firms respond to severe power shortages. Fast-growing demand coupled with regulated electricity prices led to blackouts. Our data cover approximately 32,000 energy-intensive, enterprises from numerous industries from 1999 to 2004. We find that Chinese 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." The increase in material shares due to blackouts increased unit costs by 10%. These effects are strongest for firms in textiles, timber, chemicals, and metals. Contrary to the literature on other countries' response to blackouts, we do not find evidence of an increase in self generation in China.



            JEL Codes: D24, Q4, P2, L9