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Energy price increases in developing countries : case studies of Colombia, Ghana, Indonesia, Malaysia, Turkey, and Zimbabwe

Author

Listed:
  • Hope, Einar
  • Singh, Balbir

Abstract

When domestic energy prices in developing countries fall below opportunity costs, price increases are recommended to conserve fiscal revenue and to ensure efficient use of resources. Using six case studies, the authors investigate the effect of energy price increases on the poor, inflation, growth, public revenues, and industrial competitiveness. The effect on household in various income classes depends on the energy commodity's share in the household budget and the price elasticity of demand. For energy as a whole (electricity and fuels, traditional and commercial), budget shares often decline with income. So in terms of income distribution, taxing energy is not ideal. But commercial fuel consumption increases greatly with income, so any subsidies applied will largely benefit nonpoor urban households. For each commercial energy source (electricity, kerosene, diesel, and gasoline) proportionate household spending will generally be lower, and some energy sources will be luxuries. In no instance does energy spending exceed 10 percent of the typical household budget for any income group. The effect on industry is generally modest, since cost shares for energy typically range from 0.5 to 3 percent (with typical value being 1.5). In addition, many industries are flexible enough to substitute when energy prices increase. Energy prices tended to increase in adjustment and liberalization programs, and industrial output usually increased even with the higher energy prices. This suggests that the effects of the price increase is modest compared with the effects of other changes in the environment. There are exceptions, of course, such as energy-intensive industries with limited possibilities for substitution. Estimating the effects on public deficits is straight-forward, even with uncertainty about demand elasticities: energy price increases reduce the drain on public resources significantly. It is harder to trace the effects on inflation and growth in national income. The effects on inflation will generally not be severe, and inflation may even be reduced in the intermediate to long run, through lowered public deficits. Income growth rates were generally higher after the years of energy price adjustments than they were in the years before the price increases (with one exception). Income growth rates were higher during the years of price increases than before in about half of the case study countries.

Suggested Citation

  • Hope, Einar & Singh, Balbir, 1995. "Energy price increases in developing countries : case studies of Colombia, Ghana, Indonesia, Malaysia, Turkey, and Zimbabwe," Policy Research Working Paper Series 1442, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1442
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    Citations

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    Cited by:

    1. Theodore Panayotou, 2000. "Environmental Sustainability and Services in Developing Global City Regions," CID Working Papers 55, Center for International Development at Harvard University.
    2. AlShehabi, Omar Hesham, 2013. "Modelling energy and labour linkages: A CGE approach with an application to Iran," Economic Modelling, Elsevier, vol. 35(C), pages 88-98.
    3. Jesko Hentschel & Peter Lanjouw, 2000. "Household welfare measurement and the pricing of basic services," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(1), pages 13-27.
    4. Kangni Kpodar & Calvin Djiofack, 2010. "The Distributional Effects of Oil Price Changes on Household Income: Evidence from Mali," Journal of African Economies, Centre for the Study of African Economies, vol. 19(2), pages 205-236, March.
    5. Necmiddin Bagdadioglu & Alparslan Basaran & Catherine Waddams Price, 2007. "Potential Impact of Electricity Reforms on Turkish Households," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2007-08, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    6. Hallegatte, Stephane & Heal, Geoffrey & Fay, Marianne & Treguer, David, 2011. "From growth to green growth -- a framework," Policy Research Working Paper Series 5872, The World Bank.
    7. Julie Rozenberg & St�phane Hallegatte & Baptiste Perrissin-Fabert & Jean-Charles Hourcade, 2013. "Funding low-carbon investments in the absence of a carbon tax," Climate Policy, Taylor & Francis Journals, vol. 13(1), pages 134-141, January.
    8. Julian Lampietti, 2004. "Power's Promise : Electricity Reforms in Eastern Europe and Central Asia," World Bank Publications - Books, The World Bank Group, number 14936.
    9. Mr. Kangni R Kpodar, 2006. "Distributional Effects of Oil Price Changeson Household Expenditures: Evidence From Mali," IMF Working Papers 2006/091, International Monetary Fund.
    10. Jensen, Jesper & Tarr, David, 2002. "Trade, foreign exchange, and energy policies in the Islamic Republic of Iran : reform agenda, economic implications, and impact on the poor," Policy Research Working Paper Series 2768, The World Bank.
    11. Manzoor, Davood & Haqiqi, Iman, 2012. "Impact of Energy Price Reform on Environmental Emissions; A Computable General Equilibrium Approach," MPRA Paper 95818, University Library of Munich, Germany.
    12. Kangni Kpodar, 2011. "Impact de l'accroissement du prix des produits pétroliers sur la distribution des revenus au Mali," CERDI Working papers halshs-00557133, HAL.
    13. Jiang, Zhujun & Tan, Jijun, 2013. "How the removal of energy subsidy affects general price in China: A study based on input–output model," Energy Policy, Elsevier, vol. 63(C), pages 599-606.
    14. Ali Reza Karbasi & Seyed Mohammad Fahimifard & Hamid Reza Jahany, 2009. "Studying the Effect of Energy Factor on Iran’s Agriculture Sector and Total Economy Production," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 14(1), pages 1-17, spring.
    15. Hesham AlShehabi, Omar, 2012. "Energy and labour reform: Evidence from Iran," Journal of Policy Modeling, Elsevier, vol. 34(3), pages 441-459.
    16. Fan Li & Wenche Wang & Zelong Yi, 2018. "Cross-Subsidies and Government Transfers: Impacts on Electricity Service Quality in Colombia," Sustainability, MDPI, vol. 10(5), pages 1-15, May.

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