{
  "title": "Made in Mexico: Energy Reform and Manufacturing Growth",
  "publication": "IMF Working Papers, February 27, 2015",
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  "summary": "This paper assesses the real effects of the energy reform in Mexico by looking at its impact on manufacturing output through changes in energy prices.",
  "sections": [
    {
      "heading": "Summary findings",
      "content": "- The paper assesses the real effects of the energy reform in Mexico by examining its impact on manufacturing output through changes in energy prices.\n- Electricity prices, relative to oil and gas, are found to be more important in the manufacturing process.\n- Accounting for endogeneity of unit labor costs in a panel VAR setting introduces an additional indirect channel that amplifies the impact of electricity prices on output."
    },
    {
      "heading": "Quantitative estimates and scenarios",
      "content": "- A one standard deviation reduction in electricity prices leads to a 2.8 percent increase in manufacturing output.\n- Using the authors’ estimated elasticities together with plausible reductions in electricity tariffs derived from the energy reform:\n  - Manufacturing output could increase by up to 3.6 percent.\n  - Overall real GDP could increase by 0.6 percent.\n- Larger reductions in electricity prices — and correspondingly larger output gains — are possible over the long run if increased efficiency in the sector leads electricity prices to converge to U.S. levels.\n- Including the impact of lower electricity tariffs on the services sector could lead to significantly larger effects on GDP."
    },
    {
      "heading": "Channels and mechanisms identified",
      "content": "- Direct price channel: lower electricity prices reduce input costs for manufacturing, raising output.\n- Relative importance: electricity prices matter more than oil and gas prices for manufacturing output in the empirical results.\n- Indirect labor-cost channel: endogeneity of unit labor costs (addressed in a panel VAR) amplifies the effects of electricity price changes on output.\n- Cross-sector spillovers: reductions in electricity tariffs can affect services, which may substantially increase aggregate GDP effects beyond direct manufacturing gains."
    },
    {
      "heading": "Policy implications",
      "content": "- Energy reform measures that reduce electricity tariffs can have measurable positive effects on manufacturing output and GDP.\n- Policies that improve sectoral efficiency and move electricity prices closer to U.S. levels could yield larger long-run gains.\n- Considering spillovers to services and accounting for labor-cost feedbacks strengthens the case for electricity tariff reform as a growth-enhancing policy.\n\nAuthors: Jorge A Alvarez, Fabian Valencia; February 27, 2015; Working Paper No. 2015/045; Pages: 30; DOI: https://doi.org/10.5089/9781498376426.001\n\n---\n\n Content in this bundle\n\n- wp1545\n  - wp1545 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1545 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/made-in-mexico-energy-reform-and-manufacturing-growth-42745"
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    "Authors: Jorge A Alvarez, Fabian Valencia",
    "Published: February 27, 2015",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781498376426.001",
    "The paper assesses the real effects of the energy reform in Mexico by examining its impact on manufacturing output through changes in energy prices.",
    "Electricity prices, relative to oil and gas, are found to be more important in the manufacturing process.",
    "Accounting for endogeneity of unit labor costs in a panel VAR setting introduces an additional indirect channel that amplifies the impact of electricity prices on output.",
    "A one standard deviation reduction in electricity prices leads to a 2.8 percent increase in manufacturing output.",
    "Using the authors’ estimated elasticities together with plausible reductions in electricity tariffs derived from the energy reform:",
    "Larger reductions in electricity prices — and correspondingly larger output gains — are possible over the long run if increased efficiency in the sector leads electricity prices to converge to U.S. levels.",
    "Including the impact of lower electricity tariffs on the services sector could lead to significantly larger effects on GDP.",
    "Direct price channel: lower electricity prices reduce input costs for manufacturing, raising output.",
    "Relative importance: electricity prices matter more than oil and gas prices for manufacturing output in the empirical results.",
    "Indirect labor-cost channel: endogeneity of unit labor costs (addressed in a panel VAR) amplifies the effects of electricity price changes on output.",
    "Cross-sector spillovers: reductions in electricity tariffs can affect services, which may substantially increase aggregate GDP effects beyond direct manufacturing gains.",
    "Energy reform measures that reduce electricity tariffs can have measurable positive effects on manufacturing output and GDP.",
    "Policies that improve sectoral efficiency and move electricity prices closer to U.S. levels could yield larger long-run gains.",
    "Considering spillovers to services and accounting for labor-cost feedbacks strengthens the case for electricity tariff reform as a growth-enhancing policy.",
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