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Electricity shortages and manufacturing productivity in Pakistan

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  • Grainger, Corbett A.
  • Zhang, Fan
Abstract
Electricity shortages present a significant challenge to manufacturers who require a reliable power source as an input to production. In Pakistan, power shortages are commonplace, but empirical evidence on the impact of shortages is still lacking. Using a survey of 4500 manufacturing firms for the year 2010–2011, we exploit regional differences in outages to estimate the impact of electricity shortages on firm revenues, value-added and the labor share of output. We find that an additional average daily hour of unexpected shortages decreases annual revenues by nearly 10%. Similarly, an increase in shortages by 1 h per day decreases annual value-added at the firm level by roughly 20%, and increases the labor share of output. We find that the impact for a similar amount of load-shedding is significantly smaller, likely due to predictability and firm adaptation. Our results suggest that a more reliable electricity supply would significantly improve manufacturing productivity in the region.

Suggested Citation

  • Grainger, Corbett A. & Zhang, Fan, 2019. "Electricity shortages and manufacturing productivity in Pakistan," Energy Policy, Elsevier, vol. 132(C), pages 1000-1008.
    • Handle: RePEc:eee:enepol:v:132:y:2019:i:c:p:1000-1008
    DOI: 10.1016/j.enpol.2019.05.040
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    References listed on IDEAS

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    1. Foster, Vivien & Steinbuks, Jevgenijs, 2009. "Paying the price for unreliable power supplies : in-house generation of electricity by firms in Africa," Policy Research Working Paper Series 4913, The World Bank.
    2. Fisher-Vanden, Karen & Mansur, Erin T. & Wang, Qiong (Juliana), 2015. "Electricity shortages and firm productivity: Evidence from China's industrial firms," Journal of Development Economics, Elsevier, vol. 114(C), pages 172-188.
    3. Alby, Philippe & Dethier, Jean-Jacques & Straub, Stéphane, 2011. "Let there be Light! Firms Operating under Electricity Constraints in Developing Countries," TSE Working Papers 11-255, Toulouse School of Economics (TSE).
    4. Hunt Allcott & Allan Collard-Wexler & Stephen D. O'Connell, 2016. "How Do Electricity Shortages Affect Industry? Evidence from India," American Economic Review, American Economic Association, vol. 106(3), pages 587-624, March.
    5. Fan Zhang, 2019. "In the Dark," World Bank Publications - Books, The World Bank Group, number 30923, April.
    6. Andersen, Thomas Barnebeck & Dalgaard, Carl-Johan, 2013. "Power outages and economic growth in Africa," Energy Economics, Elsevier, vol. 38(C), pages 19-23.
    7. Ama Baafra Abeberese, 2017. "Electricity Cost and Firm Performance: Evidence from India," The Review of Economics and Statistics, MIT Press, vol. 99(5), pages 839-852, December.
    8. Grainger,Corbett Alden & Zhang,Fan, 2017. "The impact of electricity shortages on firm productivity : evidence from Pakistan," Policy Research Working Paper Series 8130, The World Bank.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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