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The effect of electrification on economic outcomes is a major new area of study in environment and development economics. Almost a billion people in the world do not have access to grid electricity. Providing them a grid connection will be costly and polluting as well, even if powered by cleaner fossil fuels such as natural gas, instead of coal. However, the economic benefits of electricity are not well understood. Some studies find large effects on economic development in the long run, while others find small or negligible impacts on households in the short run. These benefits may also depend on household characteristics such as credit constraints that prevent them from consuming power or investing in complimentary assets. This paper highlights the state of current knowledge on the costs and benefits of electrification by reviewing the recent empirical literature. We discuss the identification strategies employed and evaluate the effect of electrification on a variety of household-level outcomes such as income, employment and education.

Electrification and development: Empirical evidence on the effect of electricity provision on household welfare