Sectoral Value Added : Electricity Elasticities across Countries
Many developing countries face severe electricity constraints, which are reflected in low electrification rates, frequent and prolonged outages, and high electricity tariffs, all of which result in low electricity consumption that impedes economic development. This study estimates the impact of...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2021
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/undefined/240861634825936309/Sectoral-Value-Added-Electricity-Elasticities-across-Countries http://hdl.handle.net/10986/36433 |
| Summary: | Many developing countries face severe electricity constraints,
which are reflected in low electrification rates,
frequent and prolonged outages, and high electricity tariffs,
all of which result in low electricity consumption that
impedes economic development. This study estimates the
impact of electricity consumption on value added through
reduced form equations for three sectors: agriculture, manufacturing,
and services. It uses panel data on 126 countries
for 1996–2014 from the International Energy Agency and
World Development Indicators databases. To control for
endogeneity and reverse causality bias in the ordinary least
squares estimators, the study applies two-step difference
and system panel generalized method of moments estimation
techniques, which improve the ordinary least squares
estimates by applying lags of the explanatory variables as
instruments that are not correlated with the error term
and account for countries’ fixed effects generating bias in
the coefficients. The estimation results indicate that electricity
consumption has a significant and positive impact
on the manufacturing sector’s value added in non-highincome
countries (with an elasticity of 0.022). By contrast,
the electricity consumption elasticities are insignificant in
agriculture and services in non-high-income countries, as
the production technologies of these industries vary substantially
across income groups compared with those in
manufacturing. Finally, using all the countries in the sample
produce positive and significant results for all sectors, with
the highest elasticity of 0.036 in manufacturing. |
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