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Electricity Cost and Firm Performance: Evidence from India

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  • Ama Baafra Abeberese

    (Wellesley College)

Abstract

Using data on Indian firms, I provide evidence on how electricity prices affect a firm’s industry choice and productivity growth. I construct an instrument for electricity price as the interaction between coal price and the share of thermal generation in a state’s total electricity generation capacity. I find that in response to an exogenous increase in electricity price, firms switch to less electricity-intensive production processes within narrowly defined industries, reduce their machine intensity, and have lower output and productivity growth rates. Thus, electricity constraints may limit a country’s growth by leading firms to operate in industries with fewer productivity-enhancing opportunities.

Suggested Citation

  • Ama Baafra Abeberese, 2017. "Electricity Cost and Firm Performance: Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 99(5), pages 839-852, December.
    • Handle: RePEc:tpr:restat:v:99:y:2017:i:5:p:839-852
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