How Do African Firms Respond to Unreliable Power? Exploring Firm Heterogeneity Using K-Means Clustering

24 Pages Posted: 15 Jan 2019

See all articles by Vijaya Ramachandran

Vijaya Ramachandran

Center for Global Development

Manju Kedia Shah

World Bank

Todd J. Moss

Center for Global Development

Date Written: August 20, 2018

Abstract

In this paper, we apply a novel analytical technique—k-means clustering—to understand the relationship between the growth of firms and the availability of power in sub-Saharan Africa. We develop a classification of firms and show how firm clusters are distributed across industries and countries. Our analysis reveals a surprising degree of within-country heterogeneity in the experience of firms. While previous studies have found a positive relationship between the reliability of power and firm growth, we find that such a clear relationship seems not to prevail. In other words, some firms are able to cope with an unreliable supply of power while many others do not. This may be because firms self-select into industries which promise high returns despite anticipated power problems. Further research on the conditions determining entry would provide insight into why some firms succeed in a poor business environment, while others are unable to thrive.

Keywords: electricity, power outages, Africa, firm growth, industrialization

Suggested Citation

Ramachandran, Vijaya and Shah, Manju Kedia and Moss, Todd J., How Do African Firms Respond to Unreliable Power? Exploring Firm Heterogeneity Using K-Means Clustering (August 20, 2018). Center for Global Development Working Paper No. 493. Available at SSRN: https://ssrn.com/abstract=3310490 or http://dx.doi.org/10.2139/ssrn.3310490

Vijaya Ramachandran (Contact Author)

Center for Global Development ( email )

2055 L St. NW
5th floor
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Manju Kedia Shah

World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

Todd J. Moss

Center for Global Development ( email )

2055 L St. NW
5th floor
Washington, DC 20036
United States

HOME PAGE: http://www.cgdev.org

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