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

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.

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Bioenergy as an Alternative Energy Source: Progress and Development to Meet the Energy Mix in Indonesia

“…The industrial sector, especially the micro and small enterprises (MSEs), with no backup emergency generators suffer from the low reliability of electrical supply during the peak-load periods. It was estimated that the total financial losses caused by electricity blackouts in the MES sector in Indonesia can reach nearly USD 5 million annually [17]. Although, the economic status is heavily influenced by the ESI, there is no official definition or indexing of the energy poverty in Indonesia, and the common consent is that the energy poverty can be avoided by providing electricity and clean energy to households.…”

The Shareholder Value Effect of System Overloads: An Analysis of Investor Responses to the 2003 Blackout in the Us

“…Several scholars have examined the economic consequences of electricity blackouts. They found that electricity blackouts are generally associated with adverse effects on labor productivity of affected firms due to work interruptions (Falentina and Resosudarmo, 2019;Fisher-Vanden et al, 2012;Anderson et al, 2007;Nkosi and Dikgang, 2018;Yamashita et al, 2008), making them particularly costly in economic terms with regard to welfare losses.…”