Electricity and Firm Productivity: A General-Equilibrium Approach
American Economic Journal: Macroeconomics
vol. 15,
no. 4, October 2023
(pp. 67-103)
Abstract
Many policymakers view power outages as a major constraint on firm productivity in developing countries. Yet empirical studies find modest short-run effects of outages on firm performance. This paper builds a dynamic macroeconomic model to study the long-run general-equilibrium effects of power outages on productivity. Outages lower productivity in the model by creating idle resources, depressing the scale of incumbent firms and reducing entry of new firms. Consistent with the empirical literature, the model predicts small short-run effects of eliminating outages. However, the long-run general-equilibrium effects are much larger, supporting the view that eliminating outages is an important development objective.Citation
Fried, Stephie, and David Lagakos. 2023. "Electricity and Firm Productivity: A General-Equilibrium Approach." American Economic Journal: Macroeconomics, 15 (4): 67-103. DOI: 10.1257/mac.20210248Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L94 Electric Utilities
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
- O14 Industrialization; Manufacturing and Service Industries; Choice of Technology
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