Electricity prices and manufacturing production in the Philippines
Date
2016-05
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Abstract
The Philippines has one of the highest electricity rates in South East Asia and the surrounding region. This paper investigates the effect of electricity price changes on manufacturing production in the Philippines. The Vector Error-correction (VEC) approach was utilized to estimate the effect of electricity price changes on various manufacturing sectors over a period of 6 years. Results indicate that increases in the price of electricity lead to decreases in Total Manufacturing productivity in the long-run. The results reinforce the widely-held notion that high electricity prices are a deterrent to increases in manufacturing productivity, and that decreasing electricity prices will help foster growth for the manufacturing sector. Forecasting accuracy of the specified VEC models were compared with forecasts generated by Autoregressive Integrated Moving Average (ARIMA) models. Results indicate that in general, standard ARIMA models provide more accurate forecasts than the VEC models used in this paper.