Lighting Up the Last Mile: The Benefits and Costs of Extending Electricity to the Rural Poor

Abstract

Approximately one billion people live without access to electricity. However, there has been no study that rigorously estimates both the realized benefits and costs of electricity provision. In this paper, we document substantial short-run welfare gains from electricity expansion in the Philippines. We first project the expansion of the electricity grid under a least-cost first principle. Using this projected expansion as an instrument, we estimate large impacts of electricity infrastructure on household income and expenditures. We then use data on costs of electrifying individual villages to show that in a majority of cases, the physical cost of expanding electricity infrastructure is recovered after only a single year of realized expenditure gains. Finally, we find that electricity does not increase employment, suggesting that increased labor force participation is not the relevant mechanism. Rather, increases in agricultural income appear to account for a meaningful share of the income gains from electrification. These findings suggest that the benefits to rural electrification may be significantly high, even in the very short run.

JEL Classification: O13, O18, Q48