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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.

Suggested Citation

  • Alby, Philippe & Dethier, Jean-Jacques & Straub, Stéphane, 2011. "Let there be Light! Firms Operating under Electricity Constraints in Developing Countries," TSE Working Papers 11-255, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:24948
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    References listed on IDEAS

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    1. Jevgenijs Steinbuks, 2008. "Financial constraints and firms' investment: results of a natural experiment measuring firm response to power interruption," Working Papers EPRG 0823, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Adeola Adenikinju, 2005. "Analysis of the cost of infrastructure failures in a developing economy: The case of the electricity sector in Nigeria," Working Papers 148, African Economic Research Consortium, Research Department.
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    4. Foster, Vivien & Steinbuks, Jevgenijs, 2009. "Paying the price for unreliable power supplies : in-house generation of electricity by firms in Africa," Policy Research Working Paper Series 4913, The World Bank.
    5. Mobarak, Ahmed & Lipscomb, Molly & Barham, Tania, 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.
    6. Straub, Stéphane, 2005. "Informal sector: The credit market channel," Journal of Development Economics, Elsevier, vol. 78(2), pages 299-321, December.
    7. Gulyani, Sumila, 1999. "Innovating with Infrastructure: How India's Largest Carmaker Copes with Poor Electricity Supply," World Development, Elsevier, vol. 27(10), pages 1749-1768, October.
    8. 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.
    9. Eifert, Benn & Gelb, Alan & Ramachandran, Vijaya, 2008. "The Cost of Doing Business in Africa: Evidence from Enterprise Survey Data," World Development, Elsevier, vol. 36(9), pages 1531-1546, September.
    10. 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.
    11. Kyu Sik Lee & Anas, Alex & Verma, Satyendra & Murray, Michael, 1996. "Why manufacturing firms produce some electricity internally," Policy Research Working Paper Series 1605, The World Bank.
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    Citations

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    Cited by:

    1. Fisher-Vanden, Karen & Mansur, Erin T. & Wang, Qiong (Juliana), 2015. "Electricity shortages and firm productivity: Evidence from China's industrial firms," Journal of Development Economics, Elsevier, vol. 114(C), pages 172-188.
    2. Kennedy, Ryan & Mahajan, Aseem & Urpelainen, Johannes, 2019. "Quality of service predicts willingness to pay for household electricity connections in rural India," Energy Policy, Elsevier, vol. 129(C), pages 319-326.
    3. Grainger, Corbett A. & Zhang, Fan, 2019. "Electricity shortages and manufacturing productivity in Pakistan," Energy Policy, Elsevier, vol. 132(C), pages 1000-1008.
    4. Abiodun, Kehinde & Gilbert, Ben, 2022. "Does universal electrification shield firms from productivity loss?," World Development Perspectives, Elsevier, vol. 28(C).
    5. Hunt Allcott & Allan Collard-Wexler & Stephen D. O'Connell, 2016. "How Do Electricity Shortages Affect Industry? Evidence from India," American Economic Review, American Economic Association, vol. 106(3), pages 587-624, March.
    6. 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 1-29.
    7. Jacopo Bonan & Stefano Pareglio & Massimo Tavoni, 2014. "Access to Modern Energy: a Review of Impact Evaluations," Working Papers 2014.96, Fondazione Eni Enrico Mattei.
    8. Stephen O'Connell & Allan Collard-Wexler & Hunt Allcott, 2015. "How Do Electricity Shortages A\00ffect Production? Evidence from India," 2015 Meeting Papers 159, Society for Economic Dynamics.
    9. Alexander Krauss, 2015. "Creating and destroying jobs across East Asia Pacific: a country-level analysis on wages, exports, finance, regulation and infrastructure," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-24, December.

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    More about this item

    Keywords

    Infrastructure; Electricity; Industrial structure;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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