How will power outages affect the national economic growth: Evidence from 152 countries

Electricity system security is facing severe challenges due to climate change, natural disasters, and network cyber-attacks. Although the microeconomic impacts of power outages on economic output have been well studied, there is insufficient understanding on their macro-economic effects, thus failing to efficiently support the electricity reliability policies. With this motivation, this study first constructs a theoretical model to analyze the mechanism between power outages and economic growth based on the classical production function. Then, an empirical econometric model is developed from the theoretical analysis and applied to 152 countries. To address the potential endogeneity problems, an index of annual country lightning density is calculated using remote sensing data and is served as an instrumental variable of power outages. Our major findings are that: (1) every 1% decrease in System Average Interruption Duration Index (SAIDI) will lead to an increase in global economic growth of 2.16%. (2) the impacts of power outages are heterogenous among different countries, and larger impacts occur in countries of lower-income, larger land area and lower electrification rates. (3) the improvement of power infrastructure quality in low-income countries can significantly narrow the world wealth gap, and the Gini index will decline by 9.55 ‰ if the SAIDI in low-income countries is reduced to 10% quantile of that in high-income countries. Our results provide evidence for investment in power system operating and power supply quality improving.