LAUSR

Abstract Electricity shortages present a significant challenge to manufacturers who require a reliable power source as an input to production. In Pakistan, power shortages are commonplace, but empirical evidence on the impact of shortages is still lacking. Using a survey of 4500 manufacturing firms for the year 2010–2011, we exploit regional differences in outages to estimate the impact of electricity shortages on firm revenues, value-added and the labor share of output. We find that an additional average daily hour of unexpected shortages decreases annual revenues by nearly 10%. Similarly, an increase in shortages by 1 h per day decreases annual value-added at the firm level by roughly 20%, and increases the labor share of output. We find that the impact for a similar amount of load-shedding is significantly smaller, likely due to predictability and firm adaptation. Our results suggest that a more reliable electricity supply would significantly improve manufacturing productivity in the region.