Power constraints and firm-level total factor productivity in developing countries

Ablam Estel Apeti and Alpha Ly

Energy, 2024, vol. 309, issue C

Abstract: This paper analyzes the effects of power outages and constraints on manufacturing firms’ revenue-based total factor productivity in developing countries. The empirical analysis is based on the World Bank Enterprise Surveys dataset for 84 countries for the period 2006–2019. The paper starts by showing statistically that firms facing power outages differ and operate in very different environments compared to firms not facing power outages, underlining a potential nonrandom issue relating to the treatment variable. A matching-based approach is designed to contain this type of bias. It shows that power outages reduce firm-level revenue-based total factor productivity, with average productivity 11% lower for exposed firms compared to unexposed firms. Our results, robust to several tests, reveal some heterogeneity, particularly with regard to the level of development, country income group, and geographical location. In addition to the effects on productivity, the analyses highlight that power outages reduce business expansion, captured by sales growth, and employment. Moreover, we show that this effect is mitigated for firms with R&D activities and those equipped with backup power generators. Finally, transmission channel tests indicate that the negative effect of power outages on productivity is mainly driven by capacity utilization reduction and higher sales losses.

Keywords: Power constraints; Productivity; Developing countries (search for similar items in EconPapers)
JEL-codes: D24 L94 O10 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:309:y:2024:i:c:s0360544224026458

DOI: 10.1016/j.energy.2024.132871

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