How Do Electricity Shortages Affect Productivity? Evidence from India

Hunt Allcott, Allan Collard-Wexler, Stephen D. O'Connell

NBER Working Paper No. 19977
Issued in March 2014
NBER Program(s):   DEV   EEE   IO   PR

Endemic blackouts are a particularly salient example of how poor infrastructure might reduce growth in developing economies. As a case study, we analyze how Indian textile plants respond to weekly "power holidays." We then study how electricity shortages affect all Indian manufacturers, using an instrument based on hydroelectricity production and a hybrid Leontief/Cobb-Douglas production function model. Shortages reduce average output by about five percent, but because most inputs can be stored during outages, productivity losses are much smaller. Plants without generators have much larger losses, and because of economies of scale in generator capacity, shortages more severely affect small plants.

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Document Object Identifier (DOI): 10.3386/w19977

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