Study: Getting on Electric Grid Might Not End Poverty

Plugging in the nearly 800 million people in the world who lack access to commercial electricity is one of 17 global sustainable development goals set by the United Nations. But studies of are mixed on whether connecting small towns and villages to the grid reduces poverty and improves quality of life. While greater access to electricity correlates to greater national wealth, other evidence suggests that small communities reap little or no economic or quality-of-life benefits.

New research from the University of Maryland and the University of Chicago clarifies the seeming contradictions, revealing that village size determines the benefit of electrification. The study, which appears in the September issue of the Journal of Political Economy, showed significant benefits of electrifying villages with populations over 2,000 people, but no benefits in villages with 300 or fewer persons, and modest benefits in between.

Because most people who lack commercial electricity live in very small villages, rural electrification requires massive per capita expenditures that might be more helpful elsewhere, the researchers found.

“Are those investments going to bring people out of poverty? It looks like the answer is no, at least not in the smallest villages,” said Assistant Professor Louis Preonas, an energy and environmental economist in UMD’s Department of Agricultural and Resource Economics and co-author of the study. “That may sound depressing, but we are in the business of figuring out what works, and what works might not be electricity. It may be health clinics, schools or roads. Or it might be electricity coupled with many of those things.”

To understand the benefits of electrification in rural areas, Preonas leveraged data from a massive national electrification program by the Indian government that connected 17.5 million households—roughly 1 in 5 rural households—between 2005 and 2011.

Using data on household electricity consumption before and after electrification, Preonas and co-author Fiona Burlig, an economist from the University of Chicago, estimated the impacts of connecting every home in rural India to the grid. They also analyzed census data and household survey data from thousands of villages in hundreds of districts across India, comparing things like household expenditures, school attendance, new jobs and growth of microbusiness before and after electrification.

Their study found that in villages with populations of 2,000 or more, household expenditures doubled after electrification. He also saw significant growth in microenterprises and off-farm employment, both key indicators of economic development. Meanwhile, 300-person villages saw a small decline in household expenditure, and no significant change in other indicators of economic growth. In the middle, villages with around 1,000 residents saw a very small gain in household expenditures, suggesting a possible bump in household income.

“When we looked into the data, what also stands out is that people started micro enterprises in large villages,” Preonas said. “You can imagine that being able to start a micro enterprise is really dependent on having electricity for a lot of reasons, whether you're going to be a tailor or have a shop, or have refrigeration or anything like that.”

It is important to note that in such places, people without access to an electrical grid are not without electricity, Preonas said. They often obtain limited power through solar panels or diesel generators. This could be why connecting to the grid did not increase the number of microenterprises or produce increases in household expenditures.

Preonas added that in such small villages, connection to the power grid may provide other, less easily measurable quality-of-life improvements from the perspective of the villagers, although the study was not designed to quantify those factors.