The link between foreign ownership and environmental performance remains a controversial issue. This paper contributes to our understanding of this subject by analyzing the impact of foreign acquisitions on plant-level energy intensity. The analysis applies a difference-indifferences approach combined with propensity score matching to the data from the Indonesian Manufacturing Census for the period 1983-2001 (or 1983-2008 in robustness checks). It covers 210 acquisition cases where an acquired plant is observed two years before and at least three years after an ownership change and for which a carefully selected control plant exists. The results suggest that while foreign ownership increases the overall energy usage due to expansion of output, it decreases the plant's energy intensity. Specifically, acquired plants reduce energy intensity by about 30% two years after acquisition, relative to the control plants. In contrast, foreign divestments tend to increase energy intensity. At the aggregate level, entry of foreign-owned plants is associated with industry-wide reduction in energy intensity.
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
The Philippines provides a leading example of Rodrik's Rule that developing countries experience deindustrialization at lower levels of per-capita income than did developed countries. Previous studies point to the role of protectionist policies, financial crises, and exchange rate overvaluation as explanations for the shrinking share of industry sector. We complement this literature by looking at how power prices influence the growth and composition of manufacturing in the Philippines, in comparison to OECD countries and Indonesia, Thailand, Malaysia, and Singapore. We find that higher power prices are associated with industry's share turning downward at substantially lower levels of per capita income and that the decline is somewhat steeper. We find similar evidence for the movement of industry's share in different regions of the Philippines. The composition of Philippine manufacturing, which stagnated in labor-intensive subsectors, provides supporting evidence that high power rates is likely to be a causal factor behind the structural transformation of the economy.
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