Open Access

ARTICLE

Impact of Electricity Shortages on Productivity: Evidence from Manufacturing Industries

by Xinhong Xue¹, Zhongcheng Wang^2,*

1 School of Finance, Anhui University of Finance & Economics, Bengbu, 233030, China
2 School of International Trade and Economics, Anhui University of Finance & Economics, Bengbu, 233030, China

* Corresponding Author: Zhongcheng Wang. Email:

Energy Engineering 2021, 118(4), 995-1008. https://doi.org/10.32604/EE.2021.014613

Received 11 October 2020; Accepted 30 November 2020; Issue published 31 May 2021

Abstract

Electricity shortages present a significant constraint on manufacturers, who rely on electricity as an important input into production. In China, electricity supply has been growing rapidly. However, the rapid industrialization sometimes makes the power supply still unable to meet the demand. Using a survey of 1673 Chinese manufacturing firms, this paper explores how firms response to electricity shortages and its impact on productivity. We find that self-generation of electricity and investment in Research and Development (R&D) have significant positive relationships with electricity shortages. Further investigations reveal that self-generation is the most common way to deal with electricity shortages. However, it aggravates productivity loss. Though investment in Research and Development can promote productivity, it cannot offset the negative impact of electricity shortages on productivity. Analyses on subsamples show heterogeneity in the impacts of electricity shortages across firms. In particular, large firms are more inclined to invest in R&D than small and medium-sized firms are. They are also the one who suffer significant productivity loss due to self-generation of electricity. Though it is possible for medium-sized firms to reduce productivity loss through R&D, they are not likely to invest in R&D as a response to electricity shortages. This study illustrates that firms can hardly have effective solutions to electricity shortages, and policy makers should take great efforts to increase electricity supply.

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