Energy abundance, the geographical distribution of manufacturing, and international trade

Abstract

AbstractOne of the main challenges of the current energy transition is how countries can deliver a low-carbon future while at the same time ensuring they can meet an ever growing demand for energy. This paper investigates how the spatial distribution of endowments of energy resources influences the location of firms and their subsequent exports. Employing a pseudo-endowment approach, we measure energy abundance using province-sector-year input data for Chinese provinces from 2006 to 2010. Our results suggest that energy abundance has a positive and significant impact on the location of industrial production, especially for energy intensive sectors. Nonetheless, the impact of energy abundance on trade flows is much smaller than on production shares, in terms of both the magnitude and significance. Further analysis explores how an uneven distribution of new coal mines, fuel prices, and policy-driven shocks affect the location of production and trade. Our study contributes to understanding the economic consequences of the energy transition, particularly regarding the phase-out of traditional energy sources such as coal and its impact on firm location and trade flows.