Abstract
Electricity is a crucial input to the industrial production of South Korea. Estimating the demand function for electricity in the manufacturing sector is an important task because electricity consumption in the manufacturing sector accounts for 56.3% of total electricity consumption in South Korea. Thus, this article tries to estimate the demand function for industrial electricity in the manufacturing sector of South Korea using cross-sectional data for analyzing the influence of manufacturing firms’ characteristics. To this end, 946 observations collected from a nationwide survey of manufacturing firms in 2018 are used and analyzed. As a robust approach, the least absolute deviations estimation method is applied to obtaining the demand function. The results show that the price elasticity and the sales amount elasticity of the industrial electricity demand are estimated to be −0.9206 and 0.2568, respectively, which are statistically significant at the 1% level. Furthermore, the economic benefits of industrial electricity consumption are computed to be 1.46 times as great as the price of electricity. The results of this study can be utilized in policy planning, making, and evaluation.
Highlights
Electricity is an essential input to industrial production, such as labor and capital [1]
As whether a firm is equipped with an uninterruptible power supply (UPS) or not affects the demand for electricity, we considered a dummy variable for firms equipped with UPS
The method for estimating the demand function given in Equation (3) should be determined
Summary
Electricity is an essential input to industrial production, such as labor and capital [1]. The activity of producing goods or services through the input of electricity results in an increase in sales or added value [2]. South Korea’s industrial demand for power accounts for 56.3% of its total electricity demand, the second-largest figure among OECD countries after Iceland [3]. Increased added value by the industrial sector through the stable supply of industrial electricity has played an important role in South Korea’s promotion from developing countries to advanced countries. If electricity is not properly supplied to the manufacturing sector, the country will suffer from a severe negative impact on growth, beyond just inconvenience [6]
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