Analysis: The Impact of Energy Costs on Trade and Production in Sweden

Exporting firms are better able to adjust product prices as a result of changes in energy costs, than non-trading firms.

Erik Merkus Trade Policy Adviser

Erik Merkus

Energy costs have long been very stable, but they increased rapidly in the aftermath of Russia’s invasion of Ukraine. This analysis looks at the relationship between energy costs, industrial production, and international trade for Swedish firms in the period between 2007 and 2021.

In this analysis, the use of firm-level data allows us to highlight differences in energy costs based on a firm’s location, energy use, and industrial sector. It also takes a similar look at the energy intensity of Swedish industrial production, and how it has evolved over time.

In addition to descriptive analyses of energy costs and energy intensity of Swedish industrial players, we estimate how sensitive exporting firms are to energy costs, in relation to non-exporting firms.

Why did you look into this question?

Studying the relationship between energy and trade is important given the changes to the energy markets that will be induced by the energy transition. For example, fossil-free energy generation may display different energy cost levels and volatility, indirectly affecting international trade. We will therefore continue to analyse this issue.

What are the most important conclusions?

We find that in most sectors, higher energy costs are associated with lower exports. This finding is in line with expectations and stronger for energy intensive sectors. We also find that exporting firms are better able to adjust product prices as a result of changes in energy costs, than non-trading firms. This result warrants further attention, from both researchers and policymakers, as it could indicate a competitive advantage for firms engaged in international trade.

To whom would you like to address your findings?

This report serves to contribute to our understanding on the intricacies between energy costs and firm decisions. This relationship is complex, and this report highlights just a small part of the puzzle.

We hope that this report will lead to further analyses, from different perspectives by researchers and competent government agencies, that allow policymakers to begin to understand the relationship between energy cost shocks and international trade.

What is the National Board of Trade Sweden?

The National Board of Trade is the Swedish government agency for international trade, the EU internal market and trade policy. Our mission is to facilitate free and open trade with transparent rules as well as free movement in the EU internal market. We provide the Swedish Government with independent analyses, reports and policy recommendations and take into account the views of businesses of all sizes in international trade policy-related matters.