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2017-12-01 | project

The impact of rural electrification on non-agricultural enterprises creation: Evidence from rural Ethiopia

There is increasing evidence and widespread agreement that access to energy sources is a prerequisite for economic growth, development of local industrialization, agricultural up scaling and improving the welfare of the poor. This understanding underpins the formulation of goal 7 of the sustainable development goals of the United Nations and the Sustainable Energy for All (SE4ALL) initiative that aims to improve the lives of the poor by ensuring access to modern energy services such as electricity (SE4ALL, 2014). In this regard, Ethiopia has been undertaking remarkable development in the energy sector in general and electric sector in particular since 2000.

Given this background of increasing in the rate of rural electrification, it is vital to obtain empirical evidence on the impact of rural electrification on development outcomes. Of the multiple potential benefits of creating access to electricity in the rural areas is on the creation of non-agricultural business enterprises, which provides opportunities for alternative income generation activities outside agriculture. Extra electric lighting provide opportunities to set up business opportunities by allowing more time to work at night when compared to fuel-based lighting sources. There is a growing body of research that examines the effects of electrification on various development outcomes like economic development (e.g. Lipscomb et al., 2012), female employment (e.g. Dinkelman, 2012; Lewis, 2014), and poverty (e.g. ESMAP, 2003). Nonetheless, we find little evidence on the impact of rural electrification on enterprise creation and dynamics.

The objectives of this research project are

  1. To examine the causal effect of rural electrification on opening non-agricultural business environment
  2. To investigate whether there is gender difference in the impact of electrification on the creation of non-agricultural business enterprises
  3. To examine factors that determine farm households entry and exit to non-farm enterprises in Ethiopia
  4. To inform policy makers on these impacts of rural electrification and highlights the mechanism for intervention to expand nonfarm enterprises, which is one of the main strategies of the government in improving rural livelihoods.