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Electricity shortages and firm productivity: Evidence from China's industrial firms

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Listed:
  • Fisher-Vanden, Karen
  • Mansur, Erin T.
  • Wang, Qiong (Juliana)

Abstract

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 a 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.

Suggested Citation

  • Fisher-Vanden, Karen & Mansur, Erin T. & Wang, Qiong (Juliana), 2015. "Electricity shortages and firm productivity: Evidence from China's industrial firms," Journal of Development Economics, Elsevier, vol. 114(C), pages 172-188.
    • Handle: RePEc:eee:deveco:v:114:y:2015:i:c:p:172-188
    DOI: 10.1016/j.jdeveco.2015.01.002
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    More about this item

    Keywords

    Electricity; Blackouts; Productivity; China; Outsourcing;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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