Electricity and Economic Development: Evidence from Bangladesh

Abstract

This thesis consists of three applied research papers on energy and development economics. I comprehensively investigate the impacts and implications of prepaid electricity metering systems in both residential and industrial contexts in Bangladesh. This thesis focuses on three distinct issues: (i) investigating the impact of prepaid metering on residential electricity use, (ii) examining how prepayment impacts household electricity consumption in response to temperature extremes and exploring the distributional effects on households' climate adaptation capacity, and (iii) analysing the impact of an exogenous shock such as the COVID-19 pandemic on manufacturing firm behaviours in the context of energy use.

The first paper, "The persistent effects of prepayment on residential electricity use", investigates the causal impact of prepaid electricity metering on households' monthly electricity usage in Bangladesh. Exploiting the staggered implementation of a nationwide prepayment system from January 2014 to November 2019, this study employs a difference-in-difference design with a big dataset of 54.6 million household observations. The findings reveal that households experience a significant reduction of 15.8 percent (37 kWh) in their monthly residential electricity use after transitioning from a postpaid to a prepaid electricity metering system. Moreover, the study highlights that the impact of prepaid metering is more pronounced among households belonging to the lower electricity tariff line group compared to those in the upper tariff line samples.

The second paper, "Prepayment and electricity usage in temperature extremes", provides novel evidence on how prepaid metering affects households' electricity-temperature relationship. Leveraging a unique administrative dataset of 150,000 households' billing records in Bangladesh, this study finds that households' electricity consumption becomes remarkably less responsive to temperature after they are enrolled in prepayment systems. Larger effects are documented among households with lower wealth or education levels. Prepaid households tend to engage in mental accounting of their electricity consumption especially during hot seasons. These findings suggest that prepaid metering may inadvertently exacerbate energy poverty and climate justice concerns, necessitating careful consideration of policy implications.

The final paper, COVID-19 and manufacturing firm behaviours in Bangladesh", addresses the challenges in studying enterprise development in low- and middle-income countries during exogenous shocks like the COVID-19 pandemic and lockdowns. Using a survey and administrative monthly electricity billing information from the power distributing companies operating in Dhaka, Bangladesh, this study evaluates how small and medium enterprises (SMEs) respond to the pandemic-induced shocks. This study constructs longitudinal firm-level energy use data from the monthly billing data of over 24,000 firms from the two power-distributing companies operating in Dhaka. To examine the distinct firm heterogeneity, this study surveyed 513 manufacturing firms using a random sample technique. The analysis reveals large yet temporary effects of the COVID-19 pandemic on electricity consumption among these firms, with heterogeneous impacts based on firms' export status, electricity bill payment systems, and industry types. This study highlights the need for further investigation on the complementarity between firm inputs and uncovers empirical patterns in electricity usage around firm closures, laying the groundwork for future research on predicting closure events with precision. Show more