LAUSR

Previous studies on the effects of fossil fuel subsidy reform, energy taxes, and environmental taxes on competitiveness and innovation remain contradictory and lack economywide perspectives. A deconstruction of industrial competitiveness effects on output performance and cost effectiveness using an economywide model can reveal the underlying causes and effects of fossil fuel subsidy reform and suggest strategies for alleviating loss of competitiveness in affected industries. The study reveals that all industries lose competitiveness in the short run following fuel subsidy reforms. Two-thirds of this loss derives from poorer output performance and one-third from lower cost effectiveness. Energy, intra-industry, and import industries can improve competitive advantage by fully and efficiently leveraging labor in the short run. Conversely, as exports, margins, and non-traded industries practically reach the limit of labor deployment in the short run, to further improve competitive advantage, these industries need to explore new investment and production frontiers in the middle to long run. The study also finds that backward linkage index, diesel intensity, and shares of labor in total costs have a positive relationship with the effects of fossil fuel subsidy reform, whereas forward linkage index and relative supply-to-demand elasticities have a negative relationship with the effects of reform.