Grid Extension in Rural Benin: Micro-Manufacturers and the Electrification Trap

Grid Extension in Rural Benin: Micro-Manufacturers and the Electrification Trap

In rural areas of Benin an increasing number of people have set up small enterprises in service and manufacturing, as an alternative or complimentary source of income to farming. In some areas this has been facilitated by grid electricity which has fostered further expansion. In light of the growing relevance of the non-agricultural sector, this paper from 2008 investigates the impacts of electricity provision by comparing the performance of micro manufacturing enterprises located in grid-connected and non-connected villages in Northern Benin.

The principal outcome indicator for an enterprise’s performance is its profit. The paper examines the impact of a connection on profits using Propensity Score matching. This approach uses the information from the grid covered access region to predict the probability of getting connected to firms in both the access and non-access regions. This probability – or propensity score – is then used to match connected and non-connected firms in both regions and thereby to calculate the impact of electrification on firm performance. Consequently, we are able to avoid selection bias that would likely emerge from the comparison of connected and non-connected firms in the access region only.

One of the key findings of the analysis is that a substantial number of firms are created after electrification, some of which are fundamentally dependent on electricity for their operations. These firms exhibit profits that are considerably higher than non-connected firms. With respect to the larger population of existing firms, however, our analysis fails to find clear-cut economic benefits from electrification. While the emergence of new, electricity-dependent firms suggests some evidence for positive impacts via firm creation, among the old firms, no effect of being connected to the grid on firm profits can be detected. Implications for project design and the evaluation of electrification programs are drawn in the concluding section.

(Adapted from source)

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