The impact of blackouts on the performance of micro and small enterprises: Evidence from Indonesia

Anna Falentina and Budy Resosudarmo

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

Abstract: Reliability of electricity supply is one of pressing challenges to many micro and small enterprises (MSEs) in developing countries. MSEs play a pivotal role in employment generation in these countries, but productivity of MSEs is relatively low. Little is known about how blackouts affect performance of MSEs. This paper is the first study to estimate the impact of power blackouts on productivity of manufacturing MSEs and to discuss the role of the government in addressing problem. We employ a pseudo-panel dataset covering six firm cohorts within 21 Indonesian national electricity company working areas from 2010 to 2015. Our identification strategy involves first examining blackouts determinants and then using these determinants as instruments in an IV dynamic panel fixed effects estimation while controlling for factors potentially affect productivity and correlated with blackouts. We find that electricity blackouts reduce the average labor productivity and the resultant loss amounts to approximately IDR 71.5 billion (USD 4.91 million) per year in Indonesia. Therefore, it is crucial to improve electricity supply reliability in developing countries. We find that introducing a captive generator as a way to cope with power outages, is positively associated with productivity, and MSEs that have captive generators benefit more when the power supply is poor. Our findings will assist policy makers to prioritize addressing power blackouts relative to other constraints MSEs face.

Keywords: micro and small enterprises; power blackouts; productivity; captive generators; pseudo-panel data analysis (search for similar items in EconPapers)
JEL-codes: H54 L53 L94 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2019
New Economics Papers: this item is included in nep-dev, nep-eff, nep-ene, nep-sbm and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Journal Article: The impact of blackouts on the performance of micro and small enterprises: Evidence from Indonesia (2019)
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