The Heterogeneous Impacts of Firm Upgrading on Energy Intensity

This paper examines how export activity impacts a firm's energy intensity, emphasizing the upgrading process. We introduce a firm-level complexity index incorporating two dimensions: the complexity of the traded goods and market destinations. We show that growth in external demand incentivizes firms to undertake upgrading activities, resulting in lower energy intensity. However, financial constraints diminish the energy efficiency gains from upgrading, especially for small firms. Additionally, upgraded firms can leverage higher markups, but this is effective only for larger firms. The findings suggest targeted support for small firms and underscore the necessity of open trade in a fragmented global landscape.