Electricity and firm productivity: a general-equilibrium approach
Fried, Stephie; Lagakos, David
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 shortrun
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.
↧