Energy intensity of manufacturing enterprises under competitive pressure from the informal sector: Evidence from developing and emerging countries

Abstract

The informal sector, which is prevalent in many developing countries, is an important factor influencing the strategic decisions of formal enterprises. Using a sample of manufacturing enterprises in developing and emerging countries from the World Bank Enterprise Survey from 2006 to 2020, this study investigates the mechanism of formation of the energy intensity of enterprises from the perspective of the informal sector. The results show that formal manufacturers significantly reduce their energy intensity in response to competitive pressure from informal producers. Informal competition reduces the price markup of manufacturing enterprises and the ratio of energy input to other factors while increasing total factor productivity. The abatement effect on energy intensity also exhibits the characteristics of industry and enterprise heterogeneity. A good institutional environment generally weakens the abatement effect of informal competition on energy intensity, particularly for legalization. Our findings suggest that the interaction between informal producers and formal enterprises contributes to market competition in developing and emerging countries.