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The type of power capacity matters for economic development – Evidence from a global panel

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  • Montrone, Lorenzo
  • Steckel, Jan Christoph
  • Kalkuhl, Matthias

Abstract

We examine the relationship between different types of power investments and regional economic dynamics. We construct a novel panel dataset combining data on regional GDP and power capacity additions for different technologies between 1960 and 2015, which covers 65% of the global power capacity that has been installed in this period. We use an event study design to identify the effect of power capacity addition on GDP per capita, exploiting the fact that the exact amount of power capacity coming online each year is determined by random construction delays. We find evidence that GDP per capita increases by 0.2% in the 6 years around the coming online of 100 MW coal-fired power capacity. We find similar effects for hydropower capacity, but not for any other type of power capacity. The positive effects are regionally bounded and stronger for projects on new sites (green-field). The magnitude of this effect might not be comparable to the total external costs of building new coal-fired power capacity, yet our results help to explain why policymakers favor coal investments for spurring regional growth.

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  • 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).
    • Handle: RePEc:eee:resene:v:69:y:2022:i:c:s0928765522000306
    DOI: 10.1016/j.reseneeco.2022.101313
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    2. Blimpo, Moussa P. & Dato, Prudence & Mukhaya, Brian & Odarno, Lily, 2024. "Climate change and economic development in Africa: A systematic review of energy transition modeling research," Energy Policy, Elsevier, vol. 187(C).

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    More about this item

    Keywords

    Energy and development; Economic growth; Public infrastructure; Public investments; Electricity sector;
    All these keywords.

    JEL classification:

    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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