The Importance of Revenue Sharing for the Local Economic Impacts of a Renewable Energy Project: A Social Accounting Matrix Approach

As demand for electricity from renewable energy sources grows, there is increasing interest, and public and financial support, for local communities to become involved in the development of renewable energy projects. In the UK, “Community Benefit” payments are the most common financial link between renewable energy projects and local communities. These are “goodwill” payments from the project developer for the community to spend as it wishes. However, if an ownership stake in the renewable energy project were possible, receipts to the local community would potentially be considerably higher. The local economic impacts of these receipts are difficult to quantify using traditional Input-Output techniques, but can be more appropriately handled within a Social Accounting Matrix (SAM) framework where income flows between agents can be traced in detail. We use a SAM for the Shetland Islands to evaluate the potential local economic and employment impact of a large onshore wind energy project proposed for the Islands. Sensitivity analysis is used to show how the local impact varies with: the level of Community Benefit payments; the portion of intermediate inputs being sourced from within the local economy; and the level of any local community ownership of the project. By a substantial margin, local ownership confers the greatest economic impacts for the local community.

Negative investment in China: financing constraints and restructuring versus growth

This paper attempts to address a puzzle in China’s investment pattern: despite high aggregate investment and remarkable economic growth, negative net investment is commonly found at the microeconomic level. Using a large firm-level dataset, we test three hypotheses to explain the existence and extent of negative investment in each ownership group: what we term the efficiency (or restructuring) hypothesis, the (lack of) financing hypothesis, and the (slow) growth hypothesis. Our panel data probit estimations shows that negative investment by state-owned firms can be explained mainly by inefficiency: owing to over-investment or mis-investment in the past, these firms have had to restructure and to get rid of obsolete capital in the face of increasing competition and hardening budgets. The financing explanation holds for private firms, which have had to divest in order to raise capital. However, rapid economic growth weighs against both effects in all types of firms, with a larger impact for firms in the private and foreign sectors. A tobit model, estimated to examine the determinants of the amount of negative investment, yields similar conclusions.

Investment and financing constraints in China: does working capital management make a difference?

We use a panel of over 120,000 Chinese firms of different ownership types over the period 2000-2007 to analyze the linkages between investment in fixed and working capital and financing constraints. We find that those firms characterized by high working capital display high sensitivities of investment in working capital to cash flow (WKS) and low sensitivities of investment in fixed capital to cash flow (FKS). We then construct and analyze firm-level FKS and WKS measures and find that, despite severe external financing constraints, those firms with low FKS and high WKS exhibit the highest fixed investment rates. This suggests that good working capital management may help firms to alleviate the effects of financing constraints on fixed investment.