Date of Award

Summer 8-2016

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Political Science, International Development, and International Affairs

Committee Chair

Shahdad Naghshpour

Committee Chair Department

Political Science, International Development, and International Affairs

Committee Member 2

Robert Pauly

Committee Member 2 Department

Political Science, International Development, and International Affairs

Committee Member 3

Joseph St. Marie

Committee Member 3 Department

Political Science, International Development, and International Affairs

Committee Member 4

David Butler

Committee Member 4 Department

Political Science, International Development, and International Affairs

Abstract

This study measures the impact that electrical outages have on manufacturing production in 135 less developed countries using stochastic frontier analysis and data from World Bank’s Investment Climate surveys. Outages of electricity, for firms with and without backup power sources, are the most frequently cited constraint on manufacturing growth in these surveys.

Outages are shown to reduce output below the production frontier by almost five percent in Africa and by a lower percentage in South Asia, Southeast Asia and the Middle East and North Africa. Production response to outages is quadratic in form. Outages also increase labor cost, reduce exports of manufacturing product and slightly increase imports of intermediate materials. The rate of inefficiency in manufacturing, however, is not higher in countries with state ownership of the transmission and distribution grids.

This research has implications for economic theory. The output elasticity of electricity is nearly triple its share of inputs in production. The marginal revenue product of electricity is nearly triple the marginal revenue products of labor and capital inputs at equilibrium. Electric supply, akin to R&D, has a much larger role in economic output than postulated in production theory. Differences in the output elasticities between firm-level and worker-level production functions raise additional questions about the adequacy of the human capital theory of wage differentials.

This research has several implications for development policy. First, unlike investments in human capital, stable electric supplies can deliver short-term improvements in living standards. Second, policies focused on small business development can inadvertently raise the level of inefficiency in manufacturing.

ORCID ID

0000-0001-9411-4647

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