Electricity Shortages and Firm Productivity: Evidence from China’s Industrial Firms
Karen Fisher-Vanden, Erin T. Mansur, and Qiong (Juliana) Wang
Previously Titles: “Costly Blackouts? Measuring Productivity and Environmental Effects of Electricity Shortages” and “Does Outsourcing Reduce the Cost of Blackouts? Evidence from Chinese Enterprises”
Paper revised and resubmitted to the Journal of Development Economics.
Working Paper, October 2014.
NBER Working Paper 17741, January 2012.
SSRN WPS 1978446, January 2012.
Unreliable inputs to production, particularly those that are difficult to store, can significantly limit firms’ productivity, leading them to react in a number of ways. This paper uses an unbalanced panel of 23,000 energy-intensive, Chinese firms from 1999 to 2004 to examine how firms responded to severe power shortages in the early 2000s. Our results suggest that, in response to electricity scarcity, Chinese firms re-optimize among inputs to production by substituting materials for energy (both electric and non-electric sources)—a shift from “make” to “buy” of intermediate inputs to production. While outsourcing can be costly, Chinese firms were able to avoid substantial productivity losses by doing so. As a result of the increase in electricity scarcity from 1999 onward, we find that unit production costs increased by eight percent.
JEL Codes: D24, Q4, P2, L9