Local economic development through clean electricity generation – an analysis for Brazil and a staggered difference-in-difference approach

Adaptation of energy systems worldwide to move away from fossil fuels is widely accepted to be a key step in responding to the challenge of climate change. For developing countries and their development banks, this challenge is compounded by the need to ensure economic development, particularly to lift parts of the population out of poverty. In this article, we analyse the economic impacts of electricity generation projects of the Brazilian national development bank. We use a two-way fixed-effects (TWFE) estimator on a 15-year municipality-level panel with time-varying (or “staggered”) treatment that accounts for recent findings in the panel data analysis literature. Our study finds that clean electricity generation has weaker economic effects compared to fossil electricity generation and compared to other projects of the development bank. This differentiated impact is particularly notable when it comes to the impact of investment on employment creation and wage levels. This is the first study that uses microdata to analyse the different economic impacts of clean electricity generation and fossil electricity generation at the local level. We posit that differences in labour intensities of clean electricity generation jobs and the jobs created by fossil electricity generation as well as other types of development bank investment account for these different impacts of project investments. We recommend that the cost of externalities of these projects be internalised in order for development banks and policymakers to get a fuller picture of the benefits brought about by them. Smaller economic impacts of certain development bank investments might also have negative implications for poverty reduction efforts in the country.