Do manufacturing firms react to energy prices? Evidence from Italy
Rossella Bardazzi,
Filippo Oropallo () and
Maria Grazia Pazienza
Energy Economics, 2015, vol. 49, issue C, 168-181
Abstract:
The reaction of energy demand to price changes is a key policy issue as it describes the economy's response to changes in market conditions or to policy interventions. The issue is even more important for the Italian economy, highly exposed to energy price changes, given its almost complete fossil fuel-related energy dependence, environmental sensitivity and highly fragmented industrial structure. Besides the policy issue, there is also an important methodological debate, concerning the best way to evaluate energy demand elasticities, looking at alternative models, data and elasticity definitions. After a discussion of the main methodological issues and the related empirical literature, this paper presents an estimation of factor and fuel demand elasticities for Italian industrial firms, by using a microeconomic panel in a two-stage translog model. Using cross-price and Morishima elasticities, we obtain information on the magnitude and asymmetry of firms' responses to price changes. Moreover, the use of a micro-dataset allows the high heterogeneity of Italian firms to be considered: the results are discussed according to technology intensity, sector and firm size. Our findings show that energy is the most elastic input for all sectors and that capital and energy are substitutes in the low technology sector and weak complements in all others. Estimated interfuel elasticities show a high degree of demand sensitivity to fuel price changes and the vast majority of cross-price elasticities exhibit substitutability. Appropriate fiscal policies can thus be identified to give an effective impulse in influencing the industrial energy mix by changing relative prices. These findings constitute an important foundation for analysing energy demand by Italian industrial firms, given that empirical literature is particularly rare on the Italian case study.
Keywords: Capital–energy substitution; Fuel substitution; Microdata; Panel estimation (search for similar items in EconPapers)
JEL-codes: C33 D2 Q4 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988315000286
Full text for ScienceDirect subscribers only
Related works:
Working Paper: Do manufacturing firms react to energy prices? Evidence from Italy (2014) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:49:y:2015:i:c:p:168-181
DOI: 10.1016/j.eneco.2015.01.014
Access Statistics for this article
Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant
More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().