Scandinavian Working Papers in Economics

EfD Discussion Paper,
Environment for Development, University of Gothenburg

No 22-4: The Impact of Rural Electrification on Business Enterprise Creation: Panel Data Evidence from Ethiopia

Sied Hassan () and Amare Fentie ()
Additional contact information
Sied Hassan: World Bank, Washington, DC, and Environment and Climate Research Center, Ethiopian Development Research Institute, Addis Ababa
Amare Fentie: Environment and Climate Research Center

Abstract: The creation of non-agricultural business enterprises is one of the multiple potential benefits of creating access to electricity in rural areas. This study investigates whether access to grid electricity helps rural households open business enterprises in Ethiopia. Using a differencein-difference approach, our results imply that access to grid electricity does not have significant impact in the short run; however, in the long run, it increased rural households’ opening of businesses by 5%. Off-grid electricity access through low-powered technologies such as solar lanterns has insignificant impacts in both the short and long run. Robustness and falsification tests are conducted to check the validity of our results. This has implications for the country’s Growth and Transformation Plan, which aspires to transform the country’s agriculture dominated economy into an industrial economy.

Keywords: non-agricultural business; electrification; rural Ethiopia; panel data

JEL-codes: D00; D22; Q40

Language: English

34 pages, March 23, 2022

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