Resilience to Economic Shocks through Continued Electricity Access in Kenya

As COVID-19 spreads in lower-income countries, access to electricity will be critical in allowing households and firms to continue productive activities, maintain economic connections remotely, and stay up-to-date on the latest public health guidelines. Meanwhile, restrictions aimed at slowing the epidemic will cause severe short-run economic impacts, particularly in the poorest communities where many may suddenly be unable to pay their monthly bills. In Kenya, severe disruption to markets is expected that will hamper the ability of firms and households to afford ongoing electricity consumption. In anticipation of this urgent problem, Susanna Berkouwer et al. will examine whether emergency electricity credits can mitigate the damage caused by this disruption.

In this project, the researchers will undertake a field experiment to study how access to affordable electricity can improve the economic resilience of workers and firms to this crisis. Electricity subsidies will be provided to a random sample of small firms, low-income households, and household-based microenterprises in rural Kenya. Through rapid phone surveys, they will monitor household and firm responses to the crisis and the impact of these subsidies. Firms and households with electricity may operate productive appliances to generate more revenue, acquire better information via phone, television, or radio, or be more resilient against economic or health shocks in other ways. By combining the randomised controlled trial with a willingness-to-pay elicitation exercise, they plan to estimate demand for electricity and inform policymakers on the relative value of cash transfers versus electricity subsidies during economic crises.

Several governments in and outside of Africa are currently considering an electricity subsidy programme. For example, the Ghanaian government recently announced a 3-month “lifeline” electricity subsidy program in response to the economic crisis. Yet little evidence exists to inform the role of electricity subsidies in enabling economic resilience during a crisis. The high frequency data collection from this project could shape public policy in this space by providing rapid feedback to government partners in Kenya (and other low- and middle-income countries) about the impact and value of these subsidies, and compare these with alternative emergency policies that governments may be considering such as direct cash transfers.The researchers will also be able to heterogeneity by gender, location, and industry in the impacts of an electricity subsidy program. This could be particularly helpful in formulating policy to provide support to women who may face greater barriers to leaving their firm or home during a lockdown due to safety concerns.

Authors

Susanna Berkouwer

University of Pennsylvania

Eric Hsu

University of California, Berkeley

Edward Miguel

University of California, Berkeley

Catherine Wolfram

University of California, Berkeley