Electricity Expansion Produces Large Development Gains in Brazil

Ahmed Mushfiq Mobarak — May 2013

Gaining access to electricity leads to larger improvements in income and education than previously estimated, according to new research by Professor Ahmed Mushfiq Mobarak.

Brazil’s electricity grid expansions through investments in hydropower dams between 1960 and 2000 had large, positive effects on the country’s economic development, according to new estimates by researchers at the Yale School of Management, the University of Virginia, and the University of Colorado.

The development gains were concentrated in the income and education sectors, and not in health, according to the study.

The results show that a 10% increase in electrification increased income per capita by almost 10% and reduced poverty by about 7%. Going from no electricity to full electrification led to a 47% improvement in mean employment across Brazilian counties.

A county gaining access to full electrification led to a gain of 19 index points in its education score in the UN Human Development Index. Going from no electricity to full electrification also reduced the illiteracy rate by 25% at the mean and by 32% in the proportion of the population with less than four years of education. The largest gains were in years of schooling, which increased by two years, representing a 72% increase at the mean.

The income and education gains were across sectors and across rural and urban areas.

“Our results suggest that electricity led to some broad-based improvements as workers gained both post-secondary education and work experience in the decade following electrification,” said study co-author Ahmed Mushfiq Mobarak, associate professor of economics at the Yale School of Management.

To estimate the development effects of electrification, the authors constructed a new model that simulates the evolution of an electricity network using geographic characteristics that affect the suitability of hydropower dams, such as water flow and river gradient, and the national construction budget in each decade. The large development benefits estimated with the new model suggest that traditional models based on electricity demand have underestimated the benefits of electricity access.

“A quarter of the world’s population still doesn’t have access to electricity and unreliable energy access can have large effects on firm productivity,” said Mobarak. “Brazil’s experience is important to understanding the development effects of electrification, especially as we are seeing renewed investment in large infrastructure projects as a means of reducing poverty.”

“Development Effects of Electrification: Evidence from the Topographic Placement of Hydropower Plants in Brazil,” is published in the American Economics Journal: Applied Economics.