Rising energy costs and heterogeneous innovation outcomes in Thailand

Abstract

We present the first firm-level study examining the causal relationship between innovation and rising energy costs in Thailand. Employing the most comprehensive set of innovation measures in the literature, we provide robust evidence that higher energy costs significantly drive firms to innovate across four key dimensions: product, process, marketing, and organizational innovation. Specifically, a one-unit increase in energy costs makes firms 3.3 times more likely to engage in at least one form of innovation compared to not innovating. However, this likelihood declines to 2.5 times for firms pursuing two types of innovation concurrently, and no significant effect is observed for firms engaging in three or more types simultaneously. We leverage an instrumental variables strategy based on geographic variations in energy consumption patterns and show that rising energy costs independently spur innovation not only in broad categories but also in specific areas such as automation, adoption of new technologies, and radical product development. These findings have important policy implications: while rising energy costs are often viewed as detrimental to economic growth, our results suggest that well-designed innovation policies can mitigate these effects and generate positive externalities. Policymakers should consider aligning energy and innovation strategies to foster economic resilience and long-term growth in the face of escalating energy costs.