From Power Shortages to Reliable Electricity: Grid Upgrading and Firm Performance in Nepal

Abstract

Reliable electricity is critical for firms in developing economies, yet improvements in electricity infrastructure may not translate immediately into better firm performance. This study examines whether grid upgrades were associated with changes in electricity reliability and firm performance in Nepal. We combine three waves of the World Bank Enterprise Survey (2009, 2013, and 2023) with city-level information on major grid upgrades and predetermined industry electricity intensity from the 2006/07 Census of Manufacturing Establishments. Using a difference-in-differences-in-differences (DDD) framework, we exploit variation across time, upgraded and comparison cities, and firms’ predetermined industry electricity intensity. The baseline estimates suggest that a one-standard-deviation increase in electricity intensity is associated with a 32.3-percentage-point larger decline in outage incidence and approximately 14.1 fewer hours of monthly outage exposure in upgraded cities relative to comparison cities. However, statistical significance is sensitive to model specification, and the outage-exposure estimate depends substantially on the composition of the comparison group. We find no statistically significant effects on real sales, employment, or labor productivity, while the positive estimates for total factor productivity provide only suggestive evidence of improvement. Pre-treatment placebo tests reveal no statistically significant differential changes, although the limited pre-treatment observations constrain their interpretation. Overall, the findings suggest that grid upgrading may improve electricity reliability, but the evidence is sensitive to identification and inference choices, and its implications for broader firm performance remain uncertain. Show more