The Effect of Electrification on Total Factor Productivity (TFP) in Africa, East African

Abstract

Various studies that began around 1950s indicate positive impacts of electrification on productivity during the early stage of economic development. Nonetheless, there is no well established relationship between electrification and productivity for the matured or world developed economy. Thus, because Africa is in the stage of economic development, this research aims to examine at whether electrification has a positive impact on productivity growth. The study examines the impact of electrification on Total Factor Productivity growth in Africa for the period between 2000-2010. Methodologically quantitative research approach was adopted then, documentary review was used where simple Cobb-Douglas approach and regression analysis was used to analyse relevant documents for this study. In Cobb-Douglas approach, the study estimated differences in Total Factor Productivity (TFP) across countries and in the regression analysis that encompasses Pooled Ordinary Least Square (OLS), Fixed and Random Effect, the study analysed the impact of electrification on productivity growth and level. The results of the fixed effect model show the evidence in favour of the Schurr’s hypothesis that, electrification has a positive impact on productivity growth in Africa. But, the evidence on productivity level is found when energy-related variables are excluded from the model which provides support for the argument that more electricity-intense production method increase productivity. The study therefore, recommends that in Africa, policy makers should put more emphasis in electricity-intense production, in order to cope with the industrial electricity demand arising from increased productivity.