GEP 16/06: Energy efficiency gains from trade in intermediate inputs: Firm-level evidence from Indonesia

Abstract

This paper investigates whether importing intermediate goods improves firm-level environmental performance in a developing country, using data from the Indonesian manufacturing sector. We build a simple theoretical model showing that trade integration of input markets entails energy efficiency improvements within importers relative to nonimporters. To empirically isolate the impact of firm participation in foreign intermediate input markets we use ‘nearest neighbour’ propensity score matching and difference-indifference techniques. Covering the period 1991-2005, we find evidence that becoming an importer of foreign intermediates boosts energy efficiency, implying beneficial effects for the environment. 
 

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Authors

Michele Imbruno and Tobias D. Ketterer

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