Welfare Impacts of Rural Electrification: A Panel Data Analysis from Vietnam

Abstract

Most past studies on the development impact of rural electrification have relied on cross-sectional surveys comparing households with and without electricity. This study tests the validity of the perceived correlation between welfare outcomes and rural electrification and quantifies electricity’s benefits on the basis of sound econometric techniques that control for endogeneity bias. The study used panel surveys conducted in rural Vietnam in 2002 and 2005, covering some 1,120 households in 41 communes; by 2005, all surveyed communes had connected to the grid, and four-fifths of their households had a connection. The econometric estimations suggest grid electrification’s positive effects on both household income and expenditure and education. We find differential returns to electricity for commune- and household-level connection: the former generates externality benefiting the poor more than the rich, farm more than nonfarm income, and girls over boys for schooling outcome; conversely, the latter benefits the rich more than the poor, nonfarm more than farm income, and boys over girls for schooling outcome. We recommend further study on rural electrification’s long-term benefits for the overall rural economy.