Charles Ackah (University of Ghana, Accra)
One of the commonly cited obstacles to firms’ operations in developing economies is inadequate access to electricity. In this paper, we explore the impact of electricity outages on firm produc- tivity using arguably exogenous variation in outages across small and medium-sized Ghanaian manufacturing firms induced by an electricity rationing program. We find that eliminating outages in this setting could lead to an increase in firm productivity. We further analyze the strategies firms use to cope with outages. We draw two main conclusions from the analysis in this paper. First, power outages have a significant negative impact on productivity. Our estimates suggest that, for instance, reducing the number of days in a month with outages from the average of about 10 in Ghana to none, as is the typical case in most developed countries, has the potential to increase productivity by about 10 percent. Second, firms are able to reduce the negative productivity impacts of outages by altering their product mix in favor of less electricity-intensive products. This coping strategy can have broader implications for the variety of products available to consumers. Further, we find that one of the most common strategies employed worldwide, the use of a generator, is unable to alleviate the negative productivity impact potentially due to the inability of small firms to efficiently use generators given the substantial economies of scale in electricity generation.