Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192444 
Year of Publication: 
2006
Series/Report no.: 
Discussion Papers No. 462
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
National and international expansion of transmission networks and diminishing returns to scale in hydropower capacity expansion has raised the opportunity cost of electricity. The resulting changes in comparative advantage between industries have in many countries been counteracted by government assistance to energy intensive industries. A good example is the implicit electricity price subsidies offered to energy intensive manufacturing in Norway through the state owned power company Statkraft. We use firm data to assess the share of firms that will survive in the long run when these subsidies are removed, highlighting that large cost heterogeneity within the industries may imply diminishing returns to scale at the industry level. This feature is incorporated in a multisectoral CGE model, which is used to estimate the equilibrium adjustments of the industry structure and relative prices of removing the subsidies. Such a policy will lead to a less specialised industry structure and reduces gross trade. The positive public budget effect allows the government to cut other taxes, which fuels the real exchange rate depreciation necessary to meet the national budget constraint.
Subjects: 
Industry policy
Comparative advantage
Structural change
JEL: 
D21
E23
E27
E62
F13
F18
F41
F43
Document Type: 
Working Paper

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