Firms Operating under Electricity Constraints in Developing Countries

Abstract

Many developing countries are unable to provide their industrial sectors with reliable electric power, with the result that many enterprises must contend with an insufficient and unreliable supply of electricity. Because of these constraints, enterprises often opt for self-generation of electricity even though it is widely considered a second-best solution. This paper develops a theoretical model of investment behavior in remedial infrastructure in the presence of physical constraints. It then illustrates the model's predictions using a large crosscountry sample of enterprises from the World Bank Enterprise Survey database. Electricity-intensive sectors in high-outage countries are characterized by a significantly lower share of small firms. JEL codes: H54, L94, L16 And God said, 'Let there be light' and there was light, but the Electricity Board said He would have to wait until Thursday to be connected.

Exploring Firm-Level Innovation and Productivity in Developing Countries: The Perspective of Caribbean Small States

“…While access to a generator allows firms to continue their operations during power outages, selfgeneration implies higher energy costs (Reinikka and Svensson, 2002) and sometimes even a weaker and more volatile power current. Furthermore, only some firms in developing regions have access to generators, depending on their size, degree of access to financing, and the dynamism of local markets (Steinbuks and Foster, 2010;Alby, Dethier, Straub, 2011;Steinbuks, 2012). Other coping strategies may be as simple as running machinery at faster speeds in periods when grid electricity is available, or more elaborately, outsourcing production of intermediate inputs.…”

Spatial Dynamics of Electricity Usage in India

“…Since electricity is an essential input in production, it is thus natural that about 35% of plants in Indian manufacturing insure themselves against outages by self-generating or otherwise substituting away from grid electricity (Alcott et al, 2014;World Bank, 2013). The situation is similar in other developing countries where unreliable energy supply forces firms to invest in selfgeneration capacity at the expense of more productive capital, outsource part of the production process, or expand firm size (e.g., Alam, 2013;Alby et al, 2013;Fisher-Vanden et al, 2013;Foster and Steinbuks, 2009;Reinikka and Svensson, 2002;Zuberi, 2012).…”

How Do Electricity Shortages Affect Industry? Evidence from India

“…3 All financial amounts are deflated to real 2004 Rupees (Rs). 4 Throughout the paper, we use the word "state" to refer to states, Union Territories, and the National Capital Region (New Delhi).…”

“…See Banerjee and Duflo (2005), Hall and Jones (1999), Hsieh and Klenow (2009), and others for discussions of the manufacturing productivity gap. 3 All data are originally reported in, or calculated to correspond to, the Indian fiscal year, which is April 1 through March 31. In this paper, "year" thus refers to the fiscal year, and for simplicity we refer to only the fiscal year's initial calendar year.…”