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Firms operating under infrastructure and credit constraints in developing countries : the case of power generators, Volume 1
 
Author:Alby, Philippe; Dethier, Jean-Jacques; Straub, Stephane ; Country:World;
Date Stored:2010/12/08Document Date:2010/12/01
Document Type:Policy Research Working PaperSubTopics:Energy Production and Transportation; Access to Finance; Climate Change Mitigation and Green House Gases; Microfinance; Private Participation in Infrastructure
Language:EnglishRegion:The World Region
Report Number:WPS5497Collection Title:Policy Research working paper ; no. WPS 5497
Volume No:1  

Summary: Many developing countries are unable to provide their industrial sector with reliable power and many enterprises have to contend with electricity that is insufficient and of poor quality. Because of these constraints, firms in developing countries opt for self-generation even though it is widely considered a second best solution. This paper develops a theoretical model of investment behavior in remedial infrastructure when physical and credit constraints are present. It then tests econometrically some implications from this model using a large sample of enterprises from 87 countries from the World Bank Enterprise Survey Database. After showing that these constraints interact and have non-linear effects depending on the industrial sector's degree of reliance on electricity and size of firms, the paper draws differentiated policy recommendations. Credit constraints appear to be the priority in sectors very reliant on electricity to spur entry and convergence to the technological frontier, while in other sectors, firms would benefit more widely from marginal improvements in electrical supply.

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