2021
  • Non-ICIMOD publication

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Does power grid infrastructure stimulate regional economic growth?

  • Zhen Xu
  • Debasish Kumar Das
  • Wei Guo
  • Wendong Wei
  • Summary

What are the effects of power grid infrastructure investment on the regional economy, and what explains these effects? This paper uses the restricted profit model and a seemingly unrelated regression (SUR) to estimate the short-term and long-term effects of power grid infrastructure on regional economic growth in 30 provinces in China from 1998 to 2017. Our results show that (1) power grid infrastructure investment has a significant positive effect on regional economic growth; (2) the associated long-term impact on the economy is greater than the short-term impact; (3) regions with high energy demands and good industry fundation benefit more from power grid infrastructure in the long term; (4) the output elasticity of power-importing and balancing regions maintained an upward trend after an electricity shortage problem had been solved, while the elasticity in power-exporting regions was positive but steadily decreased because of the resource curse effect. This paper suggests that in the current stage, the power grid infrastructure is a good policy tool to drive regional economies. However, there are differences in investment priorities among different regions.