uses Enterprise Survey observations for 14 countries and hydro‐power variation as an instrument to estimate that reducing the outages to a level comparable to that of South Africa would increase sales of firms in Sub‐Saharan Africa by 85%, a number that rises to 117% if firms do not own generators (Cole _et al._ , 2018). For 23 countries, a recent study by the World Bank (2019) estimates that a one percentage point increase in power outage frequency reduces firm‐level output by 3.3%. Furthermore, the same increase reduces firms’ share of sales from exports by 0.12%. Finally, low power reliability makes it impossible for countries to host certain high‐growth industries such as large data centers, thus further foregoing economic potential.

As the reliability of electricity supply significantly influences the production possibilities of firms, it also dynamically influences their longer‐term choices. Aterido and Hallward‐Driemeier (2010) show that for African firms, increased occurrences of power outages have a negative effect on employment growth – especially in the case of large firms. Mensah (2018) finds a negative effect of electricity shortages on employment in 21 countries in Africa that is substantial in size: overall, electricity outages decrease the probability of employment for an individual by 35% to 41%. Impact channels for this link include the discouragement of entrepreneurship by shortages, lower productivity and output by businesses, and reduced international competitiveness of firms. Indeed, a one percentage point increase in outages is estimated to reduce employment by 1.1% in the case of low‐skilled workers, and 0.35% for high‐skilled workers in a study considering a sample of 23 African countries (World Bank, 2019).

At the country level, Allcott et al. (2016) similarly use hydroelectric power supply as an instrument and estimate that electricity deficits reduce Indian manufacturing firms’ revenues by 5% to 10% on average. They do not, however, find that shortages translate into losses in productivity which might be explained by the ability of plants to store inputs for later usage. Looking only at small firms, Zhang (2019) finds that they are disproportionately affected by outages and face production costs that are higher by 0.29% of revenue for every percentage point increase in electricity shortages.

Indeed, firm size is an important factor in determining the ability to cope with outages as confirmed for a set of Indonesian manufacturing firms (Poczter, 2017). In their sample, the negative effect of electricity unreliability on firm productivity is more than 50% larger for smaller than for bigger firms. Further confirming the disproportionate effect on smaller firms, a survey of Ghanaian small‐ and medium‐sized manufacturing firms revealed that major power outages between 2012 and 2015 decreased average monthly productivity by 10% (Abeberese, Ackah and Asuming, 2017). In Bangladesh, Zhang (2019) uses two different sets of firm‐level micro data to estimate the productivity impacts of electricity shortages. According to her estimates, a shortage of 10% causes total factor productivity reductions of 3.1% when using a survey of the manufacturing industry or of 4.1% when using Enterprise Survey data.

A problem related to, but distinct from power outages are so called brownouts, which refer to fluctuations in the voltage provided by the electrical grid. According to one study, one third of enterprises surveyed in Tanzania experienced damage to their appliances resulting from brownouts (Bensch et al., 2017). The relationship between power outages and foregone economic activity is not only visible at the firm‐ level, but also on a country‐wide scale. Andersen and Dalgaard (2013) estimate the impact of power outages on economic growth at the country‐level for Sub‐Saharan African countries. Using nightlight brightness and lightning strikes as control variables, they estimate that an increase in outages by one percent reduces GDP per capita in the long run by 2.86%.

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