Dana Kassem: Does Electrification Cause Industrial Development? Grid Expansion and Firm Turnover in Indonesia
Job talk. Dana Kassem is a PhD Candidate at LSE. She will present a paper entitled "Does Electrification Cause Industrial Development? Grid Expansion and Firm Turnover in Indonesia".
I ask whether electrification causes industrial development. I combine newly digitized data from the Indonesian state electricity company with rich manufacturing census data. To understand when and how electrification can cause industrial development, I shed light on an important economic mechanism - firm turnover. In particular, I study the effect of the extensive margin of electrification (grid expansion) on the extensive margin of industrial development (firm entry and exit). To deal with endogenous grid placement, I build a hypothetical electric transmission grid based on colonial incumbent infrastructure and geographic cost factors. I find that electrification causes industrial development, represented by an increase in the number of manufacturing firms, manufacturing workers, and manufacturing output. Electrification increases firm entry rates, but also exit rates. Higher turnover rates lead to higher average productivity and induce reallocation towards more productive firms in electrified areas. This is consistent with electrification lowering entry costs, increasing competition and forcing unproductive firms to exit more often. Without the possibility of entry or competitive effects of entry, the effects of electrification are likely to be smaller.
Read the paper here (.pdf)
Host: Halvor Mehlum
Published Jan. 17, 2018 12:44 PM
- Last modified Jan. 17, 2018 4:03 PM