Studies show rural electrification has little near-term economic impact... but that misses the whole point

How electricity changed the rural United States - and what it can teach us

Despite a clear and consistent correlation between electricity consumption and per capita incomes, connecting rural households to electricity is not an automatic pathway to rapid economic improvement. Research backs this up across various time periods and geographies. This has led some to suggest that rural electrification in poor countries may not be a worthwhile investment. It costs a lot of money to extend the electricity grid. If communities can’t quickly translate that infrastructure into meaningful economic gains that improve incomes and livelihoods, should funders be putting their (increasingly limited) resources somewhere else?

But focusing only on short-term impacts would be a huge mistake. Longer-term evidence from the United States shows that over multiple decades, rural electrification transformed economies in complex, lasting, and surprising ways. It’s not easy for governments or development funders–especially those under increasing political and budgetary pressure–to value long-term impact. But it’s absolutely crucial.

It’s true: the short-term economic benefits of rural electrification are often limited.

Between 2005 and 2014, India’s national rural electrification program increased electricity consumption but did not have major impacts on economic growth. And when researchers randomized the expansion of electric grid infrastructure across rural Kenya, they found no economically meaningful impacts 5-15 months post-connection.

But the longer-term impacts are transformative… and surprising.

Let’s look at what happened in the United States. We can learn a lot from looking at rural electrification in the U.S. because it happened back in the 1930s, and because we have long-run census data that enables researchers to track economic, social, and demographic factors over many decades. The U.S. experience isn’t directly analogous to that of the African and South Asian countries trying to electrify today, but it can teach us a lot.

Like elsewhere in the world, U.S. rural electrification had limited economic effects in the short-to-medium term: it increased property values and expanded agricultural output, but had very little impact on people’s incomes or employment. But what happened next is fascinating. Two findings really struck me.

First, rural US counties that electrified early enjoyed economic advantages that persisted many decades after universal electrification. Yes, the short-term economic benefits were limited. But as time went on, rural counties that gained access to electricity earlier than others experienced lasting improvements across a wide range of economic outcomes, cementing persistent advantages over rural counties that electrified later. For example:

• Larger populations: By 2000, early-access counties were 15% more populous than similar late-electrifying counties.

• Higher employment: By 2000, early-access counties had 18% higher employment rates.

• Increased property and land values: By 1990, housing and land values were 10-12% higher in early access counties.

This really surprised me. Sure, it makes sense that electrified rural counties would enjoy a short-lived comparative advantage over others. But I’d expect that gap to have dissipated once the entire country had comparable electricity service. We electrified in the 1930s…everything should have evened out by now, right? Not so much.

Second, U.S. electrification got more women into the workforce–but the effects appeared gradually, through generational change.

This study looked at the economic impacts of U.S. grid expansion in the 1910s, when investments focused on electrifying mid-sized urban areas. (This isn’t rural electrification per se, but it illustrates something really important about change over time). The impacts on women ended up being transformative. One reason is that electrification enabled a whole new host of economic activities, many of them relying more on skilled labor. Because these jobs depended less on outright physical strength, they were more favorable for women’s employment. But–importantly–these more highly skilled jobs could only be capitalized on by more educated women. And because people make schooling decisions early in life, young women had an advantage over older ones: they had time to reorient their education and build the skills required to thrive in a transformed economy. The effects of electrification on female labor force participation therefore occurred gradually through generational change, as younger women chose to go to school and entered the workforce, and as their mothers left it.

I love this study because it illustrates the lag between technological change and social readiness. Electrification made an entirely new job market possible, one that had innate advantages for women. But it took generations before women could adapt to take advantage of it.

What does this mean for rural electrification in developing economies?

1. Rural electrification programs will likely have limited short-run impacts–and we need to be ok with that. The limited short-term gains in lower-income areas make intuitive sense. Many of the rural households being connected are relatively poor: they don’t own major appliances to consume electricity, or have capital available to start businesses. Sometimes they can’t afford to pay for electricity at all. Or the quality of power being provided through the national grid is too unreliable to serve their needs. It shouldn’t be a surprise (or taken as a sign of failure) that wholesale economic transformation takes time.

2. But governments and development funders aren’t built to prioritize impact that only appears after multiple decades… that needs to change. Considering the impact of specific interventions through a ‘return-on-investment’ lens is important: funders should absolutely work to ensure that their money is used in the most effective and efficient way possible. But the time horizon on which they measure impact needs to align with the reality of how slowly transformative economic change sometimes occurs. Political incentives drive both national governments and development funders to focus on interventions that demonstrate proof of impact quickly, in alignment with electoral or budget cycles. In an attempt to be rigorous, the development sector in particular has become obsessed with quantifying impact, but often on a timeline that’s far too short to capture actual impacts.

3. Investing in electrification means investing in a place. The findings about persistent economic advantages in U.S. counties that electrified early are consistent with models in economic geography showing that historically sunk advantages continue to shape economic activity in particular places long after the initial investment, driving enduring patterns in job creation, investment, and demographics. Electrification can impact the entire development pathway of a community or county, shaping incomes, economies, and demographics for decades to come. The sequencing of electrification investments is therefore deeply important–and more determinative than I assumed. In practice, there are lots of reasons why certain rural communities get electrified before others. Often it comes down to cost, or politics. But the sequencing should also be driven by a longer-term vision for particular communities and regions, and what cascading economic impacts electrification might result over time.

4. We can make electrification more impactful in the short term by providing parallel support for appliances and education. The economic benefits might take time to appear, but there are many things we can do to speed up the process. The U.S. experience illustrates the importance of pairing electrification with parallel investments enabling consumers to actually take advantage of power. Rural electrification in the U.S. did have some short-term benefits for rural farms, in part because the federal government made credit widely available for home modernization and appliance purchases. National governments and development funders are increasingly applying this model to African markets. The author of the study on women’s labor force participation in the U.S. suggests that complementary investments in education across developing economies–especially for women and girls–may accelerate economic transformation by enabling more women to access new and better jobs.

I’m all for ensuring that development dollars achieve the greatest possible impact–and that we rigorously measure what we achieve. But we can’t let increasing budgetary and political pressures push funders and governments to deprioritize interventions that don’t produce results immediately. As we build the future of development finance, let’s make sure we stay focused on transformational change… even if it takes time.