Who Gains from Electricity Export?

Rikard Forslid

No 21329, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Cross-border electricity trade generates classical arbitrage gains but may reduce welfare in small electricity-abundant economies. I develop a two-country general equilibrium model in which electricity is an upstream rent-generating input and manufacturing operates under monopolistic competition and increasing returns to scale. When trade equalizes electricity prices, the smaller economy gains from exports but loses its cost advantage in manufacturing, inducing firms to relocate toward the larger market. The net welfare effect depends on the balance between arbitrage gains and agglomeration losses. Quantitative simulations show that industrial relocation effects dominate across a wide range of parameter values, so that electricity exports are not welfare-improving for the smaller economy.

Keywords: Industrial location; Welfare (search for similar items in EconPapers)
JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 2026-03
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