Working Paper No. 1035

Firm Productivity and Carbon Leakage: A Study of Swedish Manufacturing Firms

Published: August 12, 2014Pages: 31Keywords: Firm heterogeneity; Carbon leakage; Energy; ImportingJEL-codes: D21; F18

Firm Productivity and Carbon Leakage: A Study of Swedish Manufacturing Firms Shon Ferguson and Mark Sanctuary

This paper examines the intensive and extensive margins of carbon leakage. The analysis uses an increase in the Swedish electricity price to identify the impact on imports at the firm and product level. Our model of heterogenous firms predicts that higher domestic electricity prices lead firms to substitute towards imports of electricity-intense products.

We test the predictions of the model using detailed firm-level data for Swedish manufacturing that includes the firm’s electricity use, their electricity cost, and the products they import, over the years 2001-2006 inclusive.

We find evidence that the impact of the electricity price is mostly a story about the extensive margin of firm imports: firms with a certain productivity respond to higher electricity prices by substituting towards relatively electricity-intense imported products. We do not find much support of an intensive margin effect, i.e. for the notion that an electricity price increase induces a broad response across firms in a given sector. Our empirical results identify the magnitude of the impact of the electricity price increase on imports and our findings characterize the firms that could be at risk to leakage.

Shon Ferguson


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Sick of Inequality?

An Introduction to the Relationship between Inequality and Health

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In this book Andreas Bergh, Therese Nilsson, IFN and Lund University, and Daniel Waldenström, IFN and Paris School of Economics, France, review the latest research on the relationship between inequality and health. What does inequality mean for our health? Does increasing income inequality affect outcomes such as obesity, life expectancy and subjective well-being?


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