Industrial energy prices and export competitiveness: evidence from India

  • Surender KumarEmail author
  • Prerna Prabhakar
Research Article


This paper empirically measures the impact of sectoral energy price differential between trading partners on Indian exports. Using dynamic gravity model, we estimate the response of Indian exports for 11 energy-intensive sectors to sectoral-level energy price asymmetry. We observe the absence of the contemporaneous effect of energy price differential on Indian exports, but the presence of persistence effects. We find that a 10% increase in relative energy prices negatively affects Indian sectoral exports by about 1% ranging from 0.9% for chemicals to 1.4% for non-ferrous metals, revealing a larger impact for energy-intensive sectors. These small effects imply that the concerns of carbon leakage are largely overplayed.


Energy prices Carbon leakage Exports Dynamic gravity India 

JEL Classification

F10 F11 F14 F18 Q56 



This work has been undertaken with the financial support of the South Asian Network for Development and Environment Economics (SANDEE) and its sponsors. Technical support and guidance has been provided by several SANDEE advisors and peers during the course of this research. We acknowledge the comments received from Dr. Celine Nauges and Professor E. Somanathan of SANDEE and the participants of the project dissemination workshop titled “Emboded Carbon Trade and Trade Resistances: Evidence from South Asian Countries” held on August 13, 2015 at the Delhi School of Economics. We are especially grateful to Dr Mani Nepal and Ms Neesha Pradhan for their cooperation throughout the study period, and also acknowledge the help provided by the administration at the University of Delhi. Any errors, opinions, or conclusions are of the authors.


  1. Abe K, Ishimura G, Tsurumi T, Managi S, Sumaila UR (2017) Does trade openness reduce a domestic fisheries catch? Fish Sci 83(6):897–906CrossRefGoogle Scholar
  2. Aichele R, Felbermayr G (2013) The effect of the Kyoto protocol on carbon emissions. J Policy Anal Manag 32(4):731–757CrossRefGoogle Scholar
  3. Aichele R, Felbermayr G (2015) Kyoto and carbon leakage: an empirical analysis of the carbon content of bilateral trade. Rev Econ Stat 97(1):104–115CrossRefGoogle Scholar
  4. Aldy JE, Pizer WA (2015) The competitiveness impacts of climate change mitigation policies. J Assoc Environ Resour Econ 2(4):565–595Google Scholar
  5. Anderson JE, Van Wincoop E (2003) Gravity with gravitas: a solution to the border puzzle. Am Econ Rev 93(1):170–192CrossRefGoogle Scholar
  6. Antweiler W, Copeland BR, Taylor MS (2001) Is free trade good for the environment? Am Econ Rev 91:877–908CrossRefGoogle Scholar
  7. Arellano M, Bover O (1995) Another look at the instrumental variable estimation of error-components models. J Econometr 68:29–52CrossRefGoogle Scholar
  8. Babiker MH (2005) Climate change policy, market structure, and carbon leakage. J Int Econ 65:421–445CrossRefGoogle Scholar
  9. Baier S, Bergstrand J (2009) Bonus vetus OLS: a simple method for approximating international trade-cost effects using the gravity equation. J Int Econ 77(1):77–85CrossRefGoogle Scholar
  10. Baylis K, Fullerton D, Karney DH (2014) Negative leakage. J Assoc Environ Resour Econ 1:51–73Google Scholar
  11. Bernstein P, William M, Montogmery D, Rutherford TF, Yang G-F (1999) Effects of restrictions on international permit trading: the MS-MRT model. Energy J Special Issue:221–256Google Scholar
  12. Bhattacharya SK, Bhattacharyay B (2007) Gains and losses of India–China trade cooperation—a gravity model impact analysis. CESifo Working Paper Series No 1970Google Scholar
  13. Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econometr 87(1):115–143CrossRefGoogle Scholar
  14. Burniaux J, Martins JO (2000) Carbon emission leakages: a general equilibrium view. OECD Economics Department Working Papers, 242, OECD publishingGoogle Scholar
  15. Copeland BR, Taylor MS (2004) Trade, growth, and the environment. J Econ Lit 42(1):7–71CrossRefGoogle Scholar
  16. Cuñat A, Maffezzoli M (2007) Can comparative advantage explain the growth of us trade? Econ J R Econ Soc 117(520):583–602Google Scholar
  17. Demailly D, Quirion P (2008) European emission trading scheme and competitiveness: a case study on the iron and steel industry. Energy Econ 30(4):2009–2027CrossRefGoogle Scholar
  18. Elliott J, Foster I, Kortum S, Munson T, Cervantes FP, Weisbach D (2010) Trade and carbon taxes. Am Econ Rev 100(2):465–469CrossRefGoogle Scholar
  19. Felder S, Rutherford TF (1993) Unilateral CO2 reduction and carbon leakage. J Environ Econ Manag 25(2):163–176CrossRefGoogle Scholar
  20. Frankel JA (2005) The environment and globalization. In: Weinstein M (ed) Globalization: What’s New. Columbia University Press, New YorkGoogle Scholar
  21. Gerlagh R, Kuik O (2007) Carbon leakage with international technology spillovers. FEEM Working Paper No 33Google Scholar
  22. Gerlagh R, Mathys NA (2011) Energy abundance, trade and industry location. Nota di Lavoro 003.2011, Fondazione Eni Enrico Mattei, MilanGoogle Scholar
  23. Halkos G, Managi S, Tsilika K (2018) Measuring air polluters’ responsibility in transboundary pollution networks. Environ Econ Policy Stud 20(3):619–639CrossRefGoogle Scholar
  24. Hanna R (2010) US environmental regulation and FDI: evidence from a panel of us-based multinational firms. Am Econ J Appl Econ 2:158–189CrossRefGoogle Scholar
  25. Harris MN, Kónya L, Mátyás L (2002) Modelling the impact of environmental regulations on bilateral trade flows: OECD, 1990–1996. World Econ 25(3):387–405CrossRefGoogle Scholar
  26. Kagohashi K, Tsurumi T, Managi S (2015) The effects of international trade on water use. PLoS One 10(7):e0132133. CrossRefGoogle Scholar
  27. Kumar S, Managi S (2009) Energy price-induced and exogenous technological change: assessing the economic and environmental outcomes. Resour Energy Econ 31(4):334–353CrossRefGoogle Scholar
  28. Kumar S, Prabhakar P (2016) Negative carbon leakage: evidence from South Asian countries. SANDEE Working PaperGoogle Scholar
  29. Kumar S, Fujii H, Managi S (2015) Substitute or complement? Assessing renewable and non-renewable energy in OECD countries. Appl Econ 47(14):1438–1459CrossRefGoogle Scholar
  30. Levinson A, Taylor MS (2008) Unmasking the pollution haven effect. Int Econ Rev 49:223–254CrossRefGoogle Scholar
  31. Linn J (2008) Energy prices and the adoption of energy-saving technology. Econ J 118(533):1986–2012CrossRefGoogle Scholar
  32. Lovo S, Gasiorek M, Tol R (2014) Investment in second-hand capital goods and energy intensity. GRI Working Papers 163, Grantham Research Institute on Climate Change and the EnvironmentGoogle Scholar
  33. Martínez-Zarzoso I (2013) The log of gravity revisited. Appl Econ 45(3):311–327CrossRefGoogle Scholar
  34. Monjon S, Quirion P (2010) How to design a border adjustment for the European Union Emissions Trading System? Energy Policy 38(9):5199–5207CrossRefGoogle Scholar
  35. Olivero MP, Yotov YV (2012) Dynamic gravity: endogenous country size and asset accumulation. Can J Econ 45(1):64–92CrossRefGoogle Scholar
  36. Santos Silva JMC, Tenreyro S (2006) The log of gravity. Rev Econ Stat 88(4):641–658CrossRefGoogle Scholar
  37. Sato M, Dechezleprêtre A (2015) Asymmetric industrial energy prices and international trade. Energy Econ 52:S130–S141CrossRefGoogle Scholar
  38. Sato M, Singer G, Dussaux D, Lovo S (2015) International and sectoral variation in energy prices 1995–2011: how does it relate to emissions policy stringency? Grantham working paperGoogle Scholar
  39. Sato M, Kenta K, Managi S (2018) Inclusive wealth, total factor productivity, and sustainability: an empirical analysis. Environ Econ Policy Stud 20(4):741–757CrossRefGoogle Scholar
  40. Tripathi S, Leitão NC (2013) India’s trade and gravity model: a static and dynamic panel data. MPRA paper 45502, University Library of Munich, MunichGoogle Scholar
  41. Tsurumi T, Managi S (2014) The effect of trade openness on deforestation: empirical analysis for 142 countries. Environ Econ Policy Stud 16(4):305–324CrossRefGoogle Scholar
  42. Tsurumi T, Managi S, Hibiki A (2015) Do environmental regulations increase bilateral trade flows? J Econ Anal Policy 15(4):1549–1577Google Scholar
  43. Van Beers C, Van den Bergh JCJM (1997) An empirical multi-country analysis of the impact of environmental regulations on foreign trade flows. Kyklos 50:29–46CrossRefGoogle Scholar
  44. World Bank (2008) International trade and climate change—economic, legal, and institutional perspectives. IBRD/the World Bank, WashingtonGoogle Scholar

Copyright information

© Society for Environmental Economics and Policy Studies and Springer Japan KK, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of Economics, Delhi School of EconomicsUniversity of DelhiDelhiIndia
  2. 2.National Council of Applied Economic ResearchDelhiIndia

Personalised recommendations