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The Role of Electricity Prices in Structural Transformation: Evidence from the Philippines

Author

Listed:
  • Majah-Leah V. Ravago

    (Department of Economics, Ateneo de Manila University)

  • Arlan Zandro I. Brucal

    (Grantham Research Institute on Climate Change and the Environment, The London School of Economics and Political Science,)

  • James Roumasset

    (University of Hawaii at Manoa)

  • Jan Carlo Punongbayan

    (University of the Philippines)

Abstract
The Philippines provides an extreme example of Rodrik’s observation that late developing countries experience deindustrialization at lower levels of per capita income than more advanced economies. Previous studies point to the role of protectionist policies, financial crises, and currency overvaluation as explanations for the shrinking share of the industry sector. We complement this literature by examining the role of electricity prices in the trajectory of industry share. We make use of data at the country level for 33 countries over the period 1980-2014 and at the Philippine regional level for 16 regions over the period 1990-2014. We find that higher electricity prices tend to amplify deindustrialization, causing industry share to turn downward at a lower peak and a lower per capita income, and to decline more steeply than otherwise. In a two-country comparison, we find that power-intensive manufacturing subsectors have expanded more rapidly in Indonesia, where electricity prices have been low, whereas Philippine manufacturing has shifted toward less power intensive and more labor-intensive subsectors in the face of high electricity prices.

Suggested Citation

  • Majah-Leah V. Ravago & Arlan Zandro I. Brucal & James Roumasset & Jan Carlo Punongbayan, 2019. "The Role of Electricity Prices in Structural Transformation: Evidence from the Philippines," Working Papers 2019-2, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
    • Handle: RePEc:hae:wpaper:2019-2
    as

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    References listed on IDEAS

    as
    1. Dani Rodrik, 2016. "Premature deindustrialization," Journal of Economic Growth, Springer, vol. 21(1), pages 1-33, March.
    2. Kilian, Lutz & Edelstein, Paul, 2007. "The Response of Business Fixed Investment to Changes in Energy Prices: A Test of Some Hypotheses About the Transmission of Ener," CEPR Discussion Papers 6507, C.E.P.R. Discussion Papers.
    3. Ravago, Majah-Leah & Fabella, Raul & Alonzo, Ruperto & Danao, Rolando & Mapa, Dennis, 2016. "Filipino 2040 Energy: Power Security and Competitiveness," MPRA Paper 87721, University Library of Munich, Germany, revised Jan 2018.
    4. Alvarez, Jorge & Valencia, Fabian, 2016. "Made in Mexico: Energy reform and manufacturing growth," Energy Economics, Elsevier, vol. 55(C), pages 253-265.
    5. Matthias Arnold, Jens & Javorcik, Beata S., 2009. "Gifted kids or pushy parents? Foreign direct investment and plant productivity in Indonesia," Journal of International Economics, Elsevier, vol. 79(1), pages 42-53, September.
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    8. Edelstein Paul & Kilian Lutz, 2007. "The Response of Business Fixed Investment to Changes in Energy Prices: A Test of Some Hypotheses about the Transmission of Energy Price Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-41, November.
    9. Majah-Leah Ravago & James Roumasset, 2016. "The Public Economics of Electricity Policy with Philippine Applications," Working Papers 201613, University of Hawaii at Manoa, Department of Economics.
    10. repec:dgr:rugggd:gd-149 is not listed on IDEAS
    11. Emmanuel S. de Dios & Jeffrey G. Williamson, 2013. "Deviant Behavior : A Century of Philippine Industrialization," UP School of Economics Discussion Papers 201303, University of the Philippines School of Economics.
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    More about this item

    Keywords

    electricity prices; structural transformation; deindustrialization;
    All these keywords.

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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