Revisiting the Energy-Happiness Paradox: A Quasi-Experimental Evidence of Electricity Access in Indonesia

Abstract

This study revisits the energy-happiness paradox hypothesis using the context of a developing nation. We used Indonesia as a case study, a unique archipelagic country with sparse subnational energy infrastructure, leading to the persistent regional energy access gap. We employed an instrumental variable technique to obviate conventional bias in the happiness regression. The model utilised a newly available national-level household survey on life satisfaction and historical data on digital maps of Indonesia’s electricity infrastructure conditions in 1985. Unlike the phenomena known as the energy-happiness paradox found mainly in the developed countries that suggest the null relationship between having energy access and people’s happiness, our finding reveals a positive effect of electricity access on people’s happiness. We also show that the mechanism in which the effect operates is through individuals’ satisfaction with housing conditions. The heterogeneity analysis shows that the impact of electricity access on happiness is more prominent in the lagging region. It justifies the placed-based policy strategy by the government in developing countries for expanding electricity access in favour of disadvantaged areas.

Quantile and Threshold Effect of Electricity Consumption on Happiness in Central Asia

“…As a result, people would spend less overall on energy and have more money to spend on other things like food, health care, and education (Samad et al, 2010). Nasrudin et al (2022) studied the energy-happiness paradox hypothesis using the case of a developing nation, Indonesia. An instrumental variable technique was employed to make use of historical information from digital maps of the state of Indonesia's energy infrastructure in 1985 as well as a recently released national-level household survey on life satisfaction and the findings show a positive effect of electricity access on people's happiness.…”

“…Apergis and Kuziboev (2023) also highlight energy as the dominant factor in the twenty-first century. However, equitable and reliable access to energy, including electricity, remains a major challenge mostly for developing countries in the world (Nasrudin et al, 2022). Especially in Central Asian region, despite the abundance of local energy resources, energy supply is very unevenly distributed between urban and rural areas.…”