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Let there be Light! Firms Operating under Electricity Constraints in Developing Countries

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  • Alby, Philippe
  • Dethier, Jean-Jacques
  • Straub, Stéphane

Abstract

Many developing countries are unable to provide their industrial sector with reliable electric power and many enterprises have to contend with insufficient and unreliable electricity supply. Because of these constraints, enterprises often opt for self-generation even though it is widely considered a second best solution. This paper develops a theoretical model of investment behavior in remedial infrastructure when physical constraints are present. It then tests econometrically implications from this model using a large sample of enterprises from 87 countries from the World Bank enterprise survey database. After showing that these constraints have non-linear effects according to the natural degree of reliance on electricity of an industrial sector and on firm size, the paper draws differentiated policy recommendations. Credit constraints appear to be the priority in sectors very reliant on electricity to spur entry and convergence to the technological frontier while, in other sectors, firms would benefit more widely from marginal improvements in electrical supply.

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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 686.

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Date of creation: Jul 2011
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Publication status: Published in The World Bank Economic Review, vol.�27, n°1, 2013, p.�109-132.
Handle: RePEc:ide:wpaper:24947

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Keywords: Infrastructure; Electricity; Industrial structure;

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  1. Alby, Philippe & Dethier, Jean-Jacques & Straub, Stephane, 2010. "Firms operating under infrastructure and credit constraints in developing countries : the case of power generators," Policy Research Working Paper Series 5497, The World Bank.
  2. Dethier, Jean-Jacques & Hirn, Maximilian & Straub, Stephane, 2008. "Explaining Enterprise Performance in Developing Countries with Business Climate Survey Data," Policy Research Working Paper Series 4792, The World Bank.
  3. Taryn Dinkelman, 2011. "The Effects of Rural Electrification on Employment: New Evidence from South Africa," American Economic Review, American Economic Association, vol. 101(7), pages 3078-3108, December.
  4. Reinikka, Ritva & Svensson, Jakob, 2002. "Coping with poor public capital," Journal of Development Economics, Elsevier, vol. 69(1), pages 51-69, October.
  5. Straub, Stéphane, 2005. "Informal sector: The credit market channel," Journal of Development Economics, Elsevier, vol. 78(2), pages 299-321, December.
  6. Steinbuks, J., 2008. "Financial constraints and firms' investment: results of a natural experiment measuring firm response to power interruption," Cambridge Working Papers in Economics 0844, Faculty of Economics, University of Cambridge.
  7. Barham, Tania & Lipscomb, Molly & Mobarak, Ahmed Mushfiq, 2011. "Development Effects of Electrification: Evidence from the Geologic Placement of Hydropower Plants in Brazil," CEPR Discussion Papers 8427, C.E.P.R. Discussion Papers.
  8. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2005. "Investment Climate and Firm Performance in Developing Economies," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 1-31, October.
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Cited by:
  1. Justin Yifu Lin & Doerte Doemeland, 2012. "Beyond Keynesianism: Global Infrastructure Investments In Times Of Crisis," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 3(03), pages 1250015-1-1.
  2. Hunt Allcott & Allan Collard-Wexler & Stephen D. O'Connell, 2014. "How Do Electricity Shortages Affect Productivity? Evidence from India," NBER Working Papers 19977, National Bureau of Economic Research, Inc.
  3. Karen Fisher-Vanden & Erin T. Mansur & Qiong (Juliana) Wang, 2012. "Costly Blackouts? Measuring Productivity and Environmental Effects of Electricity Shortages," NBER Working Papers 17741, National Bureau of Economic Research, Inc.

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