Electricity Reliability and Small Business Performance: Evidence from Pakistan

This project seeks to leverage an existing relationship with a large private utility company in Pakistan to rigorously evaluate the effects of energy quality on small business' outcomes.

Self-employment, household enterprises and micro-business activities represent a major source of employment in developing countries. These forms of small business activities are subject to several constraints, which prevent them from growing and increasing productivity. Among them, relatively little attention has been dedicated to  infrastructural constraints, in particular to the role of electricity reliability as a constraint to small and micro-business growth. According to the World Bank Enterprise Survey, about 60% of firms worldwide experience some forms of electrical outage, while about 30% identify electricity as a major constraint to growth. If we consider the particular case of Pakistan in 2013, these shares reach 81 and 75%, respectively. This project aims to rigorously assess the impact of electricity reliability on small business outcomes in an urban context.

This project presents novel solutions to some of the more common challenges in estimating the impact of the quality of electricity provision. Relying on particular features of the policies implemented by the partner institution, the researchers will be able to exploit discontinuities in the number of scheduled load shedding hours to compare average outcomes of businesses located in feeders lying on different sides of the policy thresholds. Any difference will be attributable to the different levels of electricity provision. Using the variation over time in the distribution of feeders in different loss categories, and by implementing a dynamic regression discontinuity design, this project will shed light on short and long-term impacts, as well as the impact of different intensity of load shedding on the outcomes of interest.

Since improving the quantity and quality of energy provided is a key challenge facing policy makers and private sector actors in large parts of the developing world, we expect the results of this project to be relevant to the broad policy community. Moreover, through its novel insights, this research is likely to have an impact on the academic debate on the role of energy quality in fostering growth and development and on the most effective policies to improve energy provision.