Unreliable Electricity in Developing Countries : The Role of Weak Institutions

Unreliable electricity supply in developing countries is a persistent problem with significant adverse consequences for economic growth. This paper uses a novel database on utilities, which provides systematic data on reliability, and links it to available data on country-level institutions to provide new evidence on variation in reliability across countries. The data reveal that utilities located in countries with weak institutions for controlling corruption perform significantly worse at delivering reliable electricity. The data also show that privately owned utilities perform better than publicly owned ones, consistent with standard reforms of privatization that are pursued to overcome governance problems. However, private ownership is less likely in countries with higher control of corruption, where public utilities perform better than their counterparts in countries with weaker institutions. Regardless of ownership, the estimates suggest that any given utility is likely to perform worse over time when the country in which it is located has weaker institutions. The paper forges links with available case studies to discuss potential mechanisms that may account for the correlations revealed in the data, yielding forward-looking ideas for how to turn around utility performance in weak institutional contexts.