Electricity and Firm Productivity: A General-Equilibrium Approach

59 Pages Posted: 5 Jan 2022

See all articles by Stephie Fried

Stephie Fried

Arizona State University (ASU)

David Lagakos

University of California, San Diego (UCSD) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: 2021

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.

Suggested Citation

Fried, Stephie and Lagakos, David, Electricity and Firm Productivity: A General-Equilibrium Approach (2021). CESifo Working Paper No. 9490, Available at SSRN: https://ssrn.com/abstract=3998028 or http://dx.doi.org/10.2139/ssrn.3998028

Stephie Fried (Contact Author)

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

David Lagakos

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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