American Economic Journal: Macroeconomics
no. 4, October 2023
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.
Fried, Stephie, and David Lagakos.
"Electricity and Firm Productivity: A General-Equilibrium Approach."
American Economic Journal: Macroeconomics,
Firm Behavior: Empirical Analysis
Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Industrialization; Manufacturing and Service Industries; Choice of Technology