# 1. Introduction

Power outages cause productivity losses in manufacturing companies. Hence, improving electricity access leads to gains in competition that increase the overall output of manufacturing firms in Sub-Saharan Africa (SSA).<sup>3</sup> However, it is not clear which market benefits most from these productivity gains. By becoming more competitive, do manufacturing companies increasingly sell in export markets at the expense of domestic markets? Access to reliable electricity can enable non-existing companies – firms not previously involved in the export market – to enter the export market (extensive margin). With a good quality of electricity supply and a substantial margin on export markets, existing manufacturing firms – firms in both export and domestic markets – may decide to focus more on export markets to capture additional margins (intensive margin). This is an intra-sectoral structural change (ISSC) that we define as the increase in the share of exports in total sales at the expense of domestic sales by firms in the same sector. It is thus measured by the percentage of manufacturing firms’ exports and that of their domestic sales in total sales. ISSC is therefore a structural transformation within the same sector, in this case the manufacturing sector. It is different from inter-sectoral structural change, which is the movement of firms or resources between two different sectors, for instance a structural transformation between the agriculture and manufacturing sectors.

Like structural change between the agriculture and manufacturing sectors, increasing the extensive and intensive margins is important for sustaining growth and economic development for two reasons. First, self-selection ensures that only the best-performing companies enter export markets (Camino-Mogro et al., 2023; Fafchamps et al., 2008; Van Biesebroeck, 2005; Bernard and Jensen, 1999). Because of entry costs and strong competition in export markets, firms wishing to export considerably improve their productivity before entering export markets. Second, in some cases, there is a learning-by-exporting process thanks to which feedback from foreign buyers and competitors helps to improve the performance of exporting companies after export (Camino-Mogro et al., 2023; Greenaway et al., 2002; Bigsten et al., 2000). Whether the improvement in firms' performance is ex-ante or ex-post, entering export markets is associated with better productivity which can improve wages and therefore the standard of living.

Hence, it becomes important to understand how electricity access, which is one of the main obstacles to firms' growth in SSA, helps manufacturing companies to move from domestic to export markets.<sup>4</sup> As such, this paper examines the role that access to reliable electricity could play in the orientation of manufacturing companies towards export markets at the expense of domestic markets. Using the World Bank Enterprise Surveys (WBES), we explore a sample of 13,025 manufacturing firms in 39 SSA countries surveyed between 2006 and 2022. We consider a treatment variable describing whether a firm has access to reliable electricity or not. We then assess how this treatment – a dummy taking 1 if the firm declares not experiencing power outages and 0 otherwise – affects our two measures of ISSC.

By using the entropy balancing method, we first create a counterfactual group containing firms experiencing power outages but as similar as possible to those in the treated group (the group of companies not experiencing power outages). Then, in a second step, we determine the difference in terms of ISSC between the two groups, which difference is attributed to electricity access. Compared to other

> 3 In this paper, the term output corresponds to companies' sales, since the database we use approximates production to sales.

> 4 In this paper, the word "electricity access" refers to the availability of reliable electricity.

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