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