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Do Electricity Supply Constraints Matter for Comparative Advantage?: A Neoclassical Approach

Discussion Papers


March 2014


This paper examines the extent to which electricity supply constraints could affect sectoral specialization. For this purpose, an empirical trade model is estimated from 1990--2008 panel data on 15 OECD countries and 12 manufacturing sectors. We find that along with Ricardian technological differences and Heckscher-Ohlin factor-endowment differences, productivity-adjusted electricity capacity drives sectoral specialization in several sectors. Among them, electrical equipment, transport equipment, machinery, chemicals, and paper products will see lower output shares as a result of decreases in productivity-adjusted electricity capacity. Furthermore, our dynamic panel estimation reveals that the effects of Ricardian technological differences dominate in the short-run, and factor endowment differences and productivity-adjusted electricity capacity tend to have a significant effect in only the long-run.

Keywords: Technology, Factor endowments, GDP function, Comparative advantage, Electricity.
JEL classification: F1, F11, Q40.

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