Is the Electricity Sector a Weak Link in Development?
This paper evaluates the case that the electricity sector is a weak link in the development of low-income countries. To do so, we build a database of electricity inputs and outputs for 100 countries of all income levels and use it to measure electricity-sector total-factor productivity (TFP). We document that electricity TFP varies considerably less across low- and high-income countries than aggregate TFP. We then use the data to parameterize a multi-sector growth model in which electricity is a strong complement to other inputs in production and the electricity sector faces distortions in its own input and output markets. Quantitatively, the model predicts only modest long-run GDP gains from raising electricity TFP or removing distortions. These predictions are inconsistent with the view that electricity is a weak link. We show that parameterizations making electricity a weak link would require the sector to be counterfactually large or unproductive.
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Copy CitationJonathan M. Colmer, David Lagakos, and Martin Shu, "Is the Electricity Sector a Weak Link in Development?," NBER Working Paper 32041 (2024), https://doi.org/10.3386/w32041.Download Citation
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