season) and six hours a day (summer) and would be prepared to pay 0.018 to 0.031 US$/kWh for uninterrupted power supply, or 20% more than the actual prices (Ghosh _et al._ , 2017).

In Ethiopia, manufacturing firms of comparable size are willing to pay US$ 0.0046 per kWh to reduce the monthly number of outages by one, which corresponds to 16% of the current kWh electricity price. In order to decrease average outage duration by one hour, firms would be prepared to pay US$ 0.0092 per kWh. From these numbers, the authors infer that firms’ compensating variation for a scenario without power outages would be about three times the current cost of electricity (Carlsson, Demeke and Martinsson, 2018). In Ghana, firms affected by significant power rationing between 2012 and 2015 were estimated to be willing to pay a 16% higher monthly electricity bill to avert future power outages (Abeberese, Ackah and Asuming, 2017). These results further illustrate the substantive differences in power supply quality across countries and the heterogeneity in firms’ vulnerability to power outages.

# **Higher‐quality water infrastructure matters for firms’ production and productivity**

While the better availability of data has caused studies to focus on the effects of unreliable electricity supply, water supply infrastructure also plays an important role for production. In agriculture, the relationship between water availability – determined by weather and irrigation technology – and agricultural production has been clearly established (Damania _et al._ , 2017).

Looking beyond the agricultural sector, Iimi (2011) finds that if all water supply disruptions could be removed in Europe and Central Asia, firms would on average be able to reduce their costs by 0.5%. This effect can be expected to be significantly larger in developing countries with less reliable water infrastructure.

Indeed, Islam and Hyland (2018) use Enterprise Survey data for 103 countries and analyze the effects of water supply disruptions on firms separately for low and lower‐middle income and for upper‐middle and higher income countries. They find a significant effect only for the poorer of the two groups; here, an additional water outage incident in a day would lead to sales losses of about 8.2% for the average manufacturing firm. Described as an elasticity, a 1% increase in daily water shortages causes a sales decline of 0.002%. While the ES includes only formally registered firms, similar results also hold in a survey of informal firms in 12 developing countries. For these, an increase of the monthly duration of water shortages by one standard deviation causes annual losses of about 15% of the monthly sales per worker (Islam, 2018).

Such clear relationships, however, are not present in all studies. Using multivariate analyses on ES data for firms from 100 countries, Bhat (2015) does not find a link between water scarcity problems and firms’ labor productivity. This result, however, does not imply that there is no causal link. Instead it may also indicate that firms account for unreliable water supply and choose less water intensive activities.

# **Traffic congestion disturbs economic activity in metropolitan areas**

In addition, inefficient transport infrastructure can further affect firm productivity – especially through traffic congestion in urban areas. The negative impacts of congestion on economic growth have been shown in a number of case studies, which have been reviewed by Sweet (2011). The evidence suggests that firms that are reliant on high‐skilled labor, specialized inputs, and geographically distributed markets are especially sensitive to congestion, as it obstructs their access to these factors (Weisbrod, Vary and Treyz, 2003). Sweet (2013) uses panel data from 2001 to 2007 and 88 metropolitan areas in the US and finds that, amongst effects on economic growth, a one percent increase in congestion – measured by daily 12