Costly Blackouts? Measuring Productivity and Environmental Effects of Electricity Shortages

31 Pages Posted: 14 Jan 2012 Last revised: 24 Jun 2021

See all articles by Karen Fisher-Vanden

Karen Fisher-Vanden

Pennsylvania State University

Erin T. Mansur

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Qiong (Juliana) Wang

University of Southern California

Multiple version iconThere are 2 versions of this paper

Date Written: January 2012

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

Fisher-Vanden, Karen and Mansur, Erin T. and Wang, Qiong (Juliana), Costly Blackouts? Measuring Productivity and Environmental Effects of Electricity Shortages (January 2012). Available at SSRN: https://ssrn.com/abstract=1985074

Karen Fisher-Vanden (Contact Author)

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

Erin T. Mansur

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States
603 646 2398 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Qiong (Juliana) Wang

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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