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Firms operating under infrastructure and credit constraints in developing countries : the case of power generators

Author

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

Abstract

Many developing countries are unable to provide their industrial sector with reliable power and many enterprises have to contend with electricity that is insufficient and of poor quality. Because of these constraints, firms in developing countries 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 and credit constraints are present. It then tests econometrically some 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 interact and have non-linear effects depending on the industrial sector's degree of reliance on electricity and size of firms, 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, 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.
  • Handle: RePEc:wbk:wbrwps:5497
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Kyu Sik Lee & Anas, Alex & Gi-Taik Oh, 1996. "Costs of infrastructure deficiencies in manufacturing in Indonesia, Nigeria, and Thailand," Policy Research Working Paper Series 1604, The World Bank.
    4. Bartelsman, Eric & Haltiwanger, John C. & Scarpetta, Stefano, 2004. "Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries," IZA Discussion Papers 1374, Institute for the Study of Labor (IZA).
    5. 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.
    6. Reinikka, Ritva & Svensson, Jakob, 2002. "Coping with poor public capital," Journal of Development Economics, Elsevier, vol. 69(1), pages 51-69, October.
    7. Straub, Stéphane, 2005. "Informal sector: The credit market channel," Journal of Development Economics, Elsevier, vol. 78(2), pages 299-321, December.
    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.
    9. Jean-Jacques Dethier & Maximilian Hirn & Stéphane Straub, 2011. "Explaining Enterprise Performance in Developing Countries with Business Climate Survey Data," World Bank Research Observer, World Bank Group, vol. 26(2), pages 258-309, August.
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    Citations

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    Cited by:

    1. Alby, Philippe & Dethier, Jean-Jacques & Straub, Stéphane, 2011. "Let there be Light! Firms Operating under Electricity Constraints in Developing Countries," IDEI Working Papers 686, Institut d'Économie Industrielle (IDEI), Toulouse.
    2. Stephane Straub, 2011. "Infrastructure and Development: A Critical Appraisal of the Macro-level Literature," Journal of Development Studies, Taylor & Francis Journals, vol. 47(5), pages 683-708.
    3. Ghosh, Ranjan & Kathuria, Vinish, 2014. "The transaction costs driving captive power generation: Evidence from India," Energy Policy, Elsevier, vol. 75(C), pages 179-188.

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