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Electricity Access and the Performance of Micro and Small Enterprises: Evidence from West Africa

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Abstract

Although it is widely accepted that electricity access is important for enterprise performance, the empirical evidence on the subject is mixed. In addition, evidence is scarce for micro and small enterprises operating in the informal sector. On the basis of a representative sample of informal firms in seven West African cities, we do not find evidence of a systematic, significant contribution of electricity access to enterprise performance. However, concentrating on a more homogeneous sample of tailors in Ouagadougou, we find that electricity can potentially exert a positive influence on performance, with electricity contributing to the uptake of modern machinery and business operation. Our findings are another illustration of the heterogeneity of the informal sector, which needs to be taken into account when policy interventions intend to overcome the growth constraints of firms operating in this segment of the economy.

Abstract

S’il est largement reconnu que l’accès à l’électricité joue un rôle important dans la performance des entreprises, les données empiriques sur la question sont mitigées. Qui plus est, peu d’informations sont disponibles concernant les petites et micro-entreprises opérant dans le secteur informel. Nous constatons, à partir d’un échantillon représentatif d’entreprises informelles de sept villes d’Afrique occidentale, qu’il n’existe aucune donnée démontrant un effet positif systématique et significatif de l’accès à l’électricité sur la performance des entreprises. Cependant, en examinant de près un échantillon plus homogène de tailleurs travaillant à Ouagadougou, nous observons un effet positif de l’électricité, l’accès à cette dernière favorisant l’adoption de machines modernes et contribuant au fonctionnement des entreprises. Nos résultats offrent une nouvelle illustration de l’hétérogénéité du secteur informel, qui doit être prise en compte lors de l’élaboration de politiques publiques destinées à aider les entreprises opérant dans ce segment de l’économie à surmonter les obstacles à la croissance.

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Notes

  1. See Sanchez-Robles (1998) or Canning and Pedroni (1999) for examples of cross-country studies or Rijkers et al (2010) for a study on manufacturing firms in rural and urban Ethiopia. Lipscomb et al (2010) also provide an innovative study on the developmental effects of electrification in Brazil with some more discussion on the issue.

  2. See Hausmann et al (2005) for a more detailed discussion on the issues arising from the use of perception-based data and more recently Clarke (2010) who is applying an experimental design to assess the quality of this data type.

  3. The study further shows that in certain sectors, such as garment manufacturing, the availability of electricity determines the level of technology and has a strong influence on the cost and level of production.

  4. For a detailed description of the data and sampling method, see Brilleau et al (2005).

  5. Regressing a dummy for having been re-interviewed on the observed base year characteristics of these firms did not yield any systematic pattern.

  6. The 78 per cent is based on the 2012 sample size of N=202.

  7. It is not clear why this is not the case for the 1–2–3 surveys. A possible reason is that tailors are among those groups of entrepreneurs where there may be a considerable lag between input purchase and sale of the final product.

  8. Further estimation results (by country) can be obtained from the authors upon request. We have also estimated the model presented in the section ‘Empirical Strategy’ with panel data from Peru allowing us to compare estimates with and without fixed effects. The results of this analysis do not change the basic notion of our arguments put forward here.

  9. In addition, we run a reduced-form regression that links production, measured by the value of goods produced in the last 4 weeks preceding the survey, to the possession of modern machinery controlling for capital and labour input. Given that detailed production data was only collected in the 2011 round of the tailor survey, this reduced form can only be estimated using OLS leaving endogeneity a concern that cannot be sufficiently addressed. The regression returns a positive coefficient of electric machinery on production giving further comfort on the positive link as presented in the section ‘Estimation Results and Discussion’. Detailed results can be obtained from the authors upon request.

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Acknowledgements

This research is part of a project entitled ‘Unlocking potential: Tackling economic, institutional and social constraints of informal entrepreneurship in Sub-Saharan Africa’ (www.iss.nl/informality) funded by the Austrian, German, Norwegian, Korean and Swiss Governments through the World Bank’s Multi Donor Trust Fund Project: ‘Labor Markets, Job Creation, and Economic Growth, Scaling up Research, Capacity Building, and Action on the Ground’. The financial support is gratefully acknowledged. The findings, interpretations and conclusions expressed in this article are entirely those of the authors. They do not necessarily represent the views of the World Bank or the donors supporting the trust fund. This article has greatly benefited from comments by participants to the CERES Annual Meeting 2011 in Utrecht. Any errors or omissions are solely the responsibility of the authors.

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Appendix

Appendix

Table A1

Table A1 Description of the sample of informal firms operating from a permanent business locality (1–2–3 survey) split by electricity access

Table A2

Table A2 Description of the tailor sample (tailor survey)

Table A3

Table A3 Influence of electricity access on possession of mechanic sewing machine (tailor sample)

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Grimm, M., Hartwig, R. & Lay, J. Electricity Access and the Performance of Micro and Small Enterprises: Evidence from West Africa. Eur J Dev Res 25, 815–829 (2013). https://doi.org/10.1057/ejdr.2013.16

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