Electricity and Firm Productivity: A General-Equilibrium Approach

Stephie Fried and David Lagakos

No 27081, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: E13 E23 O11 O41 Q43 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-dge, nep-eff, nep-ene, nep-mac and nep-sbm
Note: DEV EEE EFG
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Citations: View citations in EconPapers (15)

Published as Stephie Fried & David Lagakos, 2023. "Electricity and Firm Productivity: A General-Equilibrium Approach," American Economic Journal: Macroeconomics, vol 15(4), pages 67-103.

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Journal Article: Electricity and Firm Productivity: A General-Equilibrium Approach (2023)
Working Paper: Electricity and Firm Productivity: A General-Equilibrium Approach (2021)
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