It is widely believed that electricity access and economic growth go hand-in-hand. As such, developing countries have made large investments in efforts to expand their grid to rural, poor communities. In fact, expanding energy infrastructure to the nearly 1 billion people who lack access to electricity by 2030 is one of 17 global sustainable development goals set by the United Nations. Harris Public Policy’s Fiona Burlig and her co-author Louis Preonas (University of Maryland) test this basic connection between energy and growth in the context of India’s massive national rural electrification program, RGGVY, which aimed to expand electricity access to more than 400,000 villages.
Burlig and Preonas used the India program’s rules to conduct a natural experiment, comparing villages just large enough to be eligible for electricity access with those just too small to be eligible. They also compared villages before and after electrification. They found that India’s effort succeeded in significantly increasing village electricity access. In larger villages of about 2,000 people or more, this electrification caused a doubling of per-capita expenditure—an increase of about $17 per month (Rs 1,428). But the size of the village is critical. Burlig and Preonas found that in small villages of 300 people, electrification didn’t drive economic growth. In fact, per-capita monthly expenditure barely changed.
The researchers also found that the size of the village matters when determining the cost-effectiveness of electrification, as the benefits received from electrification in larger communities outweighed the costs of electrifying the village. In fact, the 2,000-person villages saw a 33 percent return on investment. This suggests that electrification was more effective at creating new income-generating opportunities in larger communities. There was zero rate of return from electrification over 20 years in the 300-person villages.