Working Paper - March 2021
Electrification to Grow Manufacturing? Evidence from Nepal
Almost half of firms in South Asia identify electricity as a major constraint to operations. We investigate whether electrification in Nepal – via microhydro mini-grids – helped grow the manufacturing sector. Electrification led to a substantial and statistically significant increase in formal manufacturing establishments; yet the overall presence remains limited due to low baseline numbers. Labor shifts from self-employment and agriculture to employment for salary and wages. Increases in informal, nonagricultural household enterprises also contribute to labor changes. In more remote locations – farther from the historical electrical grid – the impacts of microhydro on manufacturing establishments are significantly muted.