Template-Type: ReDIF-Paper 1.0
Author-Name: Zarepour, Z.
Author-Name-Last: Zarepour
Author-Name-First: Zahra
Author-Name: Wagner, N.
Author-Name-Last: Wagner
Author-Name-First: Natascha
Title: How manufacturing firms respond to energy subsidy reforms?
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.
Length: 40
Creation-Date: 2022-02-01
File-URL: https://repub.eur.nl/pub/137105/wp696.pdf
File-Format: application/pdf
Series: RePEc:ems:euriss
Number: 696
Classification-JEL: L60, O12, Q48
Keywords: Manufacturing firms, Iran, energy subsidy reform, energy price, performance loss
Handle: RePEc:ems:euriss:137105