# **Electrification increases economic output and employment**

Focusing on electricity infrastructure specifically, Rud (2012) investigates the effect of electrification on industrialization in India between 1965–1984. This state‐level analysis shows that an increase in electrification of one standard deviation is associated with an increase in manufacturing output of around 14%. In South Africa, electrification has been shown to increase employment in newly‐electrified communities between 1996 and 2001, an effect that is especially strong among women. The study suggests that this is mainly driven by an increase in small enterprises and self‐employment, rather than larger‐scale industrialization of rural regions (Dinkelman, 2011).

Using data on the Indian wholesale electricity trade market, Ryan (2017) simulates the effect of additional transmission infrastructure in regions where limited transmission capacity is obstructing trade and economic activity. He finds that investments in transmission capacity can lead to social benefits (i.e. additional consumer and producer surplus) that exceed the investment costs, especially by facilitating interregional trade, increasing market harmonization, and increasing competition. In other words, new transmission infrastructure can pay for itself by reducing the negative effects of market power. Similarly, in the context of the Indonesian manufacturing sectors between 1990 and 2000, Kassem (2018) demonstrates a link between electrification and industrial development. Electrification is shown to increase the number of firms, employment, competition among firms, and the establishment of firms with higher average productivity in electrified areas.

# **Transport infrastructure increases productivity and creates jobs**

Transport infrastructure has been shown to determine firm productivity through various channels, both at the micro and macro levels. Common links identified in the literature include effects on employment through higher mobility of high‐skilled labor, decreased transportation costs and resulting increases in trade and allocative efficiency, reduced transaction costs through lower inventory requirements, increased market entrance of new firms, and agglomeration economies through spill‐overs in knowledge and human capital caused by spatial proximity.<sup>1</sup> A key challenge to the quantification of these relationships is endogeneity. The locations where new roads are built, or existing ones are upgraded, are not randomly chosen. Instead, roads are improved in regions where gains in productivity are expected or likely. Or on the contrary, in other regions a looming decrease in economic activity may cause an increase in infrastructure investments to stimulate growth. Thus, simply evaluating productivity in an area before and after changes to the local transport network does not necessarily allow for the identification of the causal effect of infrastructure investments.

Gibbons et al. (2017) overcome this endogeneity problem by examining areas in the UK not directly affected by, but close enough to new road infrastructure that they profit from increased accessibility. They find that improving accessibility measured through journey times by 1% leads to a 0.3‐0.4% increase in overall employment. Interestingly, this increase seems to be largely driven by new firms whereas incumbents register decreases in employment that might be driven by increasing wages and resulting substitution of labor by material inputs. Duranton and Turner (2012) use the location of historic highways and railroads in the USA to assess the effect of interstate highways on the growth of cities. They find that,

> 1 For further details refer to a meta‐analysis by the Asian Development Bank et al. (2018), which offers a far‐ranging discussion and review of the wider economic effects of large transportation infrastructure projects on welfare, social inclusion, inequality, the environment, and economic resilience.

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