Electricity and Firm Productivity: A General-Equilibrium Approach / Stephie Fried, David Lagakos.

Format:

Book

Author/Creator:

Fried, Stephie.

Contributor:

National Bureau of Economic Research.

Lagakos, David.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27081.

NBER working paper series no. w27081

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

The lack of reliable electricity in the developing world is widely viewed by policymakers as a major constraint on firm productivity. Yet most empirical studies find modest short-run effects of power outages on firm performance. This paper builds a dynamic macroeconomic model to study the long-run general equilibrium effects of power outages on productivity. The model captures the key features of how firms acquire electricity in the developing world, in particular the rationing of grid electricity and the possibility of self-generated electricity at higher cost. Power outages lower productivity in the model by creating idle resources, by depressing the scale of incumbent firms and by reducing entry of new firms. Consistent with the empirical literature, the model predicts that the short-run partial-equilibrium effects of eliminating outages are small. However, the long-run general-equilibrium effects are many times larger, supporting the view that eliminating outages is an important development objective.

Notes:

Print version record

May 2020.