You Can't Count on Me: The Impact of Electricity Unreliability on Productivity

Abstract

While access to electricity can significantly constrain industrial production, little is known as to how electricity unreliability impacts firm level productivity. This is a particularly salient issue for firms in developing countries, where electricity provision is still unreliable and self-generation is costly. This paper analyzes the impact of electricity provision on productivity, instrumenting for electricity demand with district level solar irradiance for the population of industrial firms in Indonesia. Results are consistent with general-purpose technology adoption; firms exhibit decreasing productivity in the initial stages of electricity provision and this reductive effect decreases over time. Furthermore, results show that electricity unreliability negatively impacts productivity initially and over time, and this effect is larger for smaller firms.

Keywords: Electricity unreliability, manufacturing, Indonesia

JEL Classification: D24, Q4, P2, L9