Thursday, July 19, 2012

Who benefits most from rural electrification?

Khandker et al. (2012) study the impact of rural electrification in India and find that rural electrification leads to higher time allocation to studying, increase in supply of labor and household expenditure, and reduction in poverty level, but most of the benefits are enjoyed by wealthier rural households (due to higher consumption and more diversification of electricity service).

Below is an abstract of their working paper:

This paper applies an econometric analysis to estimate the average and distribution benefits of rural electrification using rich household survey data from India. The results support that rural electrification helps to reduce time allocated to fuelwood collection by household members and increases time allocated to studying by boys and girls. Rural electrification also increases the labor supply of men and women, schooling of boys and girls, and household per capita income and expenditure. Electrification also helps reduce poverty. But the larger share of benefits accrues to wealthier rural households, with poorer ones having more limited use of electricity. The analysis also shows that restricted supply of electricity, due to frequent power outages, negatively affects both household electricity connection and its consumption, thereby reducing the expected benefits of rural electrification.

They find that “the money households with electricity spend on kerosene equals what they pay for unreliable electricity service, not accounting for the loss of productivity and appliance damage due to power outages, suggesting that access without reliability may be counter-productive.”

Nepalese policymakers need to read this statement twice. Erecting electricity poles and connecting new houses with wires devoid of regular power supply is not going to be helpful. The focus should be on generating more hydropower. In Nepal’s case the shortage of electricity is leading to drastic increase in demand for diesel and LPG.