Power outages and firm performance: A hydro-IV approach for a single electricity grid

Abstract We estimate the impact of power outages on firm performance using a hydro-instrumental variable strategy which integrates a river flow with a hydropower generation model and an electricity-grid-based distance interpolation technique. Comparing World Bank Enterprise Surveys in 2005 and 2015 for Vietnam, we find that despite considerable economic progress, firms have become more susceptible to power outages. Our estimates suggest that reducing the length of power cuts by 1% would have increased revenues by 4.66 billion USD. Other results show that firms with less reliable electricity have lower productivity and use less flexible inputs, which is not mitigated by backup generators.