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".

Photo of Dana Kassem.

Dana Kassem.


I ask whether electri fication causes industrial development. I combine newly digitized data from the Indonesian state electricity company with rich manufacturing census data. To understand when and how electri fication can cause industrial development, I shed light on an important economic mechanism - fi rm turnover. In particular, I study the effect of the extensive margin of electri fication (grid expansion) on the extensive margin of industrial development (fi rm 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 electri fication causes industrial development, represented by an increase in the number of manufacturing firms, manufacturing workers, and manufacturing output. Electri fication increases fi rm entry rates, but also exit rates. Higher turnover rates lead to higher average productivity and induce reallocation towards more productive firms in electri fied areas. This is consistent with electri fication 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 electri fication 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