Electricity outages and firm productivity: Evidence from Cambodia

This study examines the effects of electricity outages on firm productivity in Cambodia, a late-electrifying economy with electricity prices among the highest in the region. Using firm-level data from the 2013 and 2023 World Bank Enterprise Surveys and a productivity framework adapted from Allcott et al. (2016), the analysis estimates the impact of outage duration on total factor productivity and revenues while addressing endogeneity concerns using Oster's (2019) method for omitted-variable bias. The 2013 results—where outage frequency was high, and outages appear exogenous—show that each additional hour of monthly outages reduces firm productivity by 0.8-1.0% and revenues by 1.5%. Eliminating outages from the weighted-average level of about 9 hours per month would raise productivity by 7.2-9.0% and revenues by 13.5%. Firms primarily respond to outages by reducing material inputs, while labor inputs remain largely inflexible. Heterogeneity analysis shows that generator ownership significantly mitigates, though does not eliminate, the adverse effects of outages. In contrast, the 2023 estimates are less reliable due to markedly lower outage levels and stronger evidence of endogenous outage allocation. Overall, the findings underscore the significant productivity losses of unreliable electricity and highlight the continued importance of strengthening grid reliability while supporting effective coping mechanisms for firms operating under energy constraints.