Power Infrastructure Quality and Industrial Performance: A Panel Data Analysis on OECD Manufacturing Sectors

Abstract This paper investigates the effects of power infrastructure quality on the performance of the manufacturing industries in 27 OECD countries over the period from 1995 to 2014. The panel Autoregressive Distributive Lag Approach (ARDL) is employed on annual data of the manufacturing production, of value-added as proxy variables for manufacturing performance, and of electricity power transmission and distribution losses as a proxy for power infrastructure quality. Due to the existence of cross-sectional dependence, second-generation estimators, namely the Common Correlated Effects Mean Group (CCEMG) and the Augmented Mean Group (AMG), are used. The results indicate that the transmission and distribution losses negatively affect both manufacturing production and value-added. The negative effect remains robust even when different sets of control variables are added. Estimations reveal that these losses have a more profound and significant effect on manufacturing production than they do on the value-added. We also found the negative effect to be higher and more significant for the EU-13 subgroup, which explains the particular interest in the issue shown in the recent EU energy efficiency directives.