The Effect of Rural Electrification on Firm Creation - New Evidence from Ghana

Tom Carlowitz

No 2021-10, CSAE Working Paper Series from Centre for the Study of African Economies, University of Oxford

Abstract: Billions of dollars are spent each year on electrification infrastructure projects in the hope to benefit the 770 million people who still lack access to electricity. However, the evidence to date on the effects of such projects is mixed. In this paper, I study the effect of rural electrification on firm creation in Ghana by focusing on the effect on female-owned microenterprises. I combine firm census data covering over 638,000 firms (including informal and rural establishments) with electricity access and geo-spatial data. I address the endogeneity of the grid expansion using an instrumental variable approach. The instrument is the distance to a hypothetical grid connecting historical regional capitals, border towns, and main hydropower plants. I find that a 10% increase in district-level electrification leads to the creation of 152 female-owned firms, which corresponds to a 37% increase. I show that this effect is largely driven by two channels: i) a reduction in home production activities by women and ii) a lowering of required startup capital for microenterprises. The findings of this paper are consistent with previous literature, showing large effects of electrification particularly for women.

Keywords: rural electrification; infrastructure; microenterprises; firms; Ghana (search for similar items in EconPapers)
JEL-codes: L26 O13 O14 O18 Q41 R11 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-afr, nep-dev, nep-ene, nep-sbm and nep-ure
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:csa:wpaper:2021-10

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