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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, 2023. "Electricity and Firm Productivity: A General-Equilibrium Approach," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(4), pages 67-103, October.
    • Handle: RePEc:aea:aejmac:v:15:y:2023:i:4:p:67-103
    DOI: 10.1257/mac.20210248
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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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    5. Zhao, Li & Gao, Zhengye & Ren, Shenggang, 2024. "The effects of long–distance power transmission on employment growth: Empirical evidence from ultra–high voltage projects of China," Energy Economics, Elsevier, vol. 138(C).
    6. Gideon Ndubuisi & Elvis Korku Avenyo & Rex Asiama, 2024. "Dancing on the grid: electricity crises, manufacturing energy vulnerability, and jobs in South Africa," WIDER Working Paper Series wp-2024-41, World Institute for Development Economic Research (UNU-WIDER).
    7. 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).
    8. Kassem, Dana, 2024. "Does electrification cause industrial development? Grid expansion and firm turnover in Indonesia," Journal of Development Economics, Elsevier, vol. 167(C).
    9. Lebrand,Mathilde Sylvie Maria, 2022. "Infrastructure and Structural Change in the Lake Chad Region," Policy Research Working Paper Series 9899, The World Bank.
    10. Cezar Santos, 2020. "Climate Change Mitigation Policies: Aggregate and Distributional Effects," Working Papers w202017, Banco de Portugal, Economics and Research Department.
    11. Hashemi, Majid, 2021. "The economic value of unsupplied electricity: Evidence from Nepal," Energy Economics, Elsevier, vol. 95(C).
    12. Mensah, Justice Tei, 2024. "Jobs! Electricity shortages and unemployment in Africa," Journal of Development Economics, Elsevier, vol. 167(C).
    13. 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.
    14. Fried, Stephie & Lagakos, David, 2021. "Rural electrification, migration and structural transformation: Evidence from Ethiopia," Regional Science and Urban Economics, Elsevier, vol. 91(C).
    15. Missbach, Leonard & Steckel, Jan Christoph & Renner, Sebastian & Kraus, Sebastian, 2024. "Coal-fired power plants and industrial development," EconStor Preprints 300209, ZBW - Leibniz Information Centre for Economics.
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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