Abstract
Productivity determinants of the urban domestic electricity sector in a cross-section of EU countries are examined to unveil the existence of two forms of spillover effects: those from foreign firms (foreign spillovers) and those related to spatial interactions (spatial spillovers). The empirical analysis also assesses the importance of industrial disaggregation in the context of the ongoing policy reform process at the EU level, aimed at creating a single competitive market for electricity. Results suggest that domestic productivity is influenced by agglomeration economies, and in particular scale economies, that both foreign and spatial spillovers are present, and that the overall implications of foreign presence and domestic firms’ ownership is differentiated across the generation and distribution segments of the electricity sector. The latter result highlights the importance of properly defining a firm’s relevant market, from the perspective of policy makers and firm managers alike.
Highlights
A widespread, European Union (EU)-wide, reform process is ongoing in the electricity sector, due to its strategic nature to households and the industrial sector alike
The appropriate specification according to Lagrange Multiplier tests6 is the Spatial Error model, suggesting the existence of a spatially clustered feature that influences the productivity levels for each city and its neighbors that is omitted from the empirical specification (Columns 3 and 4, Table 1)
Firm size, measured by total assets, is positively and significantly related to domestic productivity, as is public ownership, both in the Ordinary Least Squares (OLS) and Spatial Error specification
Summary
A widespread, European Union (EU)-wide, reform process is ongoing in the electricity sector, due to its strategic nature to households and the industrial sector alike. These authors stress the importance of regulation, competition and the overall institutional arrangements that may have direct and indirect impacts on consumers, via productivity improvements at the firm level With this framework in mind, a natural research question is to identify the drivers of domestic productivity in the electricity sector, taking into account the presence of spatial and industrial effects and explicitly focusing on the aspects which might have been affected by the EU-wide reform process. The significant association of industrial disaggregation, spatial interactions, and foreign presence, on the one hand, with domestic productivity, on the other, may be used by firms’ managers to better define and stir firm level policies, fully taking into account the importance of sectoral and international issues.
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