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Electricity and Firm Productivity: A General-Equilibrium Approach

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  • Stephie Fried
  • David Lagakos

Abstract

Many policymakers view power outages as a major constraint on firm productivity in developing countries. Yet empirical studies find modest short-run effects of outages on firm performance. This paper builds a dynamic macroeconomic model to study the long-run general-equilibrium effects of power outages on productivity. Outages lower productivity in the model by creating idle resources, depressing the scale of incumbent firms and reducing entry of new firms. Consistent with the empirical literature, the model predicts small short-run effects of eliminating outages. However, the long-run general-equilibrium effects are much larger, supporting the view that eliminating outages is an important development objective.

Suggested Citation

  • Stephie Fried & David Lagakos, 2021. "Electricity and Firm Productivity: A General-Equilibrium Approach," CESifo Working Paper Series 9490, CESifo.
    • Handle: RePEc:ces:ceswps:_9490
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Electricity and Firm Productivity: A General-Equilibrium Approach
      by Christian Zimmermann in NEP-DGE blog on 2022-02-07 17:39:56

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    Cited by:

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    3. Daniela Vidart, 2024. "Human Capital, Female Employment, and Electricity: Evidence from the Early 20th-Century United States," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(1), pages 560-594.
    4. Guo, Dongmei & Li, Qin & Liu, Peng & Shi, Xunpeng & Yu, Jian, 2023. "Power shortage and firm performance: Evidence from a Chinese city power shortage index," Energy Economics, Elsevier, vol. 119(C).
    5. Lebrand,Mathilde Sylvie Maria, 2022. "Infrastructure and Structural Change in the Lake Chad Region," Policy Research Working Paper Series 9899, The World Bank.
    6. Cezar Santos, 2020. "Climate Change Mitigation Policies: Aggregate and Distributional Effects," Working Papers w202017, Banco de Portugal, Economics and Research Department.
    7. Kassem, Dana, 2024. "Does electrification cause industrial development? Grid expansion and firm turnover in Indonesia," Journal of Development Economics, Elsevier, vol. 167(C).
    8. Hashemi, Majid, 2021. "The economic value of unsupplied electricity: Evidence from Nepal," Energy Economics, Elsevier, vol. 95(C).
    9. Mensah, Justice Tei, 2024. "Jobs! Electricity shortages and unemployment in Africa," Journal of Development Economics, Elsevier, vol. 167(C).
    10. Singer, Gregor, 2024. "Complementary inputs and industrial development: can lower electricity prices improve energy efficiency?," LSE Research Online Documents on Economics 122365, London School of Economics and Political Science, LSE Library.
    11. Fried, Stephie & Lagakos, David, 2021. "Rural electrification, migration and structural transformation: Evidence from Ethiopia," Regional Science and Urban Economics, Elsevier, vol. 91(C).
    12. Herrera Dappe,Matias & Lebrand,Mathilde Sylvie Maria, 2021. "Infrastructure and Structural Change in the Horn of Africa," Policy Research Working Paper Series 9870, The World Bank.
    13. Montrone, Lorenzo & Steckel, Jan Christoph & Kalkuhl, Matthias, 2022. "The type of power capacity matters for economic development – Evidence from a global panel," Resource and Energy Economics, Elsevier, vol. 69(C).

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    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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