Fenella Carpena, Oslo Business School
"The Adverse Effects of Electrification: Evidence from India"
Electrification programs have increasingly attracted worldwide interest as a policy tool to boost economic growth and transform the lives of the poor. While some studies have shown that electricity provision brings positive impacts by, among others, increasing employment and improving health outcomes, the potential negative effects of electricity provision remain unclear. This paper argues that electrification adversely affects consumers that do not adopt electricity despite its availability. I use a quasi-experimental setting provided by India’s national rural electrification program to study the effects of electricity provision on the kerosene markets. I show that when electricity becomes available, the price of kerosene—a substitute good for lighting—increases by 5-10%. This price increase subsequently hurts consumers who do not take up electricity and continue to use kerosene. I present a model that explains why the price of kerosene might increase, and I show that the decline in the kerosene market size is a potential channel through which electrification resulted in higher kerosene prices.
Contact person: Neda Trifkovic