The Aggregate Effects of Electrification in the Developing World

Stephie Fried and David Lagakos
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Stephie Fried: Arizona State University

No 538, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the aggregate effects of electrification in developing countries. In contrast to most previous studies, we take a structural approach, using a version of the neoclassical growth model that has electricity as a factor of production. In the model, production is done by heterogenous firms that choose between a modern technology that requires electricity, and a less-productive traditional technology that does not. Firms can produce their own electricity using generators, or purchase grid electricity, which is substantially cheaper, but rationed. A greater grid electricity supply induces growth in the model by raising the marginal product of labor and capital, by increasing private capital accumulation, and by inducing structural change, as firms move into the modern sector. Our quantitative results suggest that the large recent investments in Africa’s electricity grid led to sizable increases in aggregate labor productivity, on the order of 10 to 15 percent.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:538

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