How manufacturing firms respond to energy subsidy reforms?

Zahra Zarepour and Natascha Wagner

No 696, ISS Working Papers - General Series from International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague

Abstract: Energy prices increased several folds due to the 2010 Iranian Energy Subsidy Reform. This study assesses the impact of the reform on the performance of manufacturing firms using a detailed micro-panel dataset at the 4-digit ISIC level for the period 2009 to 2013. Since the reform universally affected all firms, the analysis relies on a quasi-experimental framework implementing first an explorative before-after design with structural fixed-effects and second a difference-in-difference analysis exploiting energy-sensitivity. The subsidy removal caused a shrinkage in output and manufacturing value-added of at least 3 and 7%, respectively. This results in a deterioration of profits by nearly 9%. Manufacturing firms have been affected through three channels: increasing costs of direct energy inputs, pass-through costs for inputs from upstream firms and an energy-price-induced demand contraction. To successfully implement an energy subsidy reform while maintaining growth in the manufacturing sector, not only the direct but also the indirect, pass-through effects have to be considered since capital or technology-led responses to mitigate negative repercussions in the short-run are unlikely at large scale. The results can inform price reforms that aim to mitigate climate change.

Keywords: Manufacturing firms; Iran; energy subsidy reform; energy price; performance loss (search for similar items in EconPapers)
JEL-codes: L60 O12 Q48 (search for similar items in EconPapers)
Pages: 40
Date: 2022-02-01
New Economics Papers: this item is included in nep-ara, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repub.eur.nl/pub/137105/wp696.pdf (application/pdf)

Related works:
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:ems:euriss:137105

Access Statistics for this paper

More papers in ISS Working Papers - General Series from International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague Contact information at EDIRC.
Bibliographic data for series maintained by RePub ( this e-mail address is bad, please contact ).