The type of power capacity matters for economic development – Evidence from a global panel

https://doi.org/10.1016/j.reseneeco.2022.101313Get rights and content
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Highlights

  • We assess the economic spillovers of different types of power capacity.

  • We compile a global panel covering over 65% of the existing installed capacity.

  • Coal and hydro power capacity increase GDP around the time of their coming online.

  • Effect are concentrated in the manufacturing sector.

  • Green-field plants have the strongest effects on GDP.

Abstract

We examine the relationship between different types of power investments and regional economic dynamics. We construct a novel panel dataset combining data on regional GDP and power capacity additions for different technologies between 1960 and 2015, which covers 65% of the global power capacity that has been installed in this period. We use an event study design to identify the effect of power capacity addition on GDP per capita, exploiting the fact that the exact amount of power capacity coming online each year is determined by random construction delays. We find evidence that GDP per capita increases by 0.2% in the 6 years around the coming online of 100 MW coal-fired power capacity. We find similar effects for hydropower capacity, but not for any other type of power capacity. The positive effects are regionally bounded and stronger for projects on new sites (green-field). The magnitude of this effect might not be comparable to the total external costs of building new coal-fired power capacity, yet our results help to explain why policymakers favor coal investments for spurring regional growth.

JEL Classifications

H76
O13
O44
O47

Keywords

Energy and development
Economic growth
Public infrastructure
Public investments
Electricity sector

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