The Heterogeneous Impacts of Firm Upgrading on Energy Intensity
IMF Working Papers, December 6, 2024
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- The Heterogeneous Impacts of Firm Upgrading on Energy Intensity
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Bibliographic details
- Authors: Povilas Lastauskas, Ziran Ding, Mustapha Douch
- Published: December 6, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400293580.001
Key findings
- Growth in external demand incentivizes firms to undertake upgrading activities, resulting in lower energy intensity.
- Financial constraints diminish the energy efficiency gains from upgrading, especially for small firms.
- Upgraded firms can leverage higher markups, but this is effective only for larger firms.
- The findings suggest targeted support for small firms and underscore the necessity of open trade in a fragmented global landscape.
Concept and measurement
- Introduces a firm-level complexity index incorporating two dimensions: the complexity of the traded goods and market destinations.
- Focuses on the relationship between export activity, upgrading processes, and firm energy intensity.
Heterogeneity and constraints
- Energy efficiency gains from upgrading are heterogeneous across firms:
- Small firms: financial constraints reduce the energy intensity benefits of upgrading.
- Large firms: upgraded firms are able to capture higher markups; this channel is not effective for smaller firms.
- Policy and market context matter: open trade facilitates upgrading and associated energy-intensity reductions, while fragmentation impedes these gains.
Policy implications and recommendations
- Targeted support for small firms to alleviate financial constraints and enable them to realize energy efficiency gains from upgrading.
- Policies that preserve or enhance openness to external demand are important to incentivize upgrading and lower firm-level energy intensity.
- Recognition that firm size conditions the effectiveness of upgrading-related channels (energy efficiency and markup gains), requiring size-differentiated policy design.
IMF Working Paper No. 2024/248 by Povilas Lastauskas, Ziran Ding, and Mustapha Douch (December 6, 2024); Pages: 60; DOI: https://doi.org/10.5089/9798400293580.001
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- Working Paper