On the Impact of Rural Electrification : The Role of Complementary Factors

This paper examines the impact of access to electricity on households' non-farm business ownership and off-farm income share, considering the role of other necessary infrastructural facilities. The study uses household level panel data from the Ethiopian Rural Socioeconomic Survey combined with geospatial information on electricity infrastructure, hydropower dams, urban settlement, and landscape topography. The empirical strategy exploits variation in households’ proximity to the least cost gridline linking hydropower dams with major urban centers to use it as an instrument for electricity access. Results show that access to electricity increases households' likelihood of owning non-farm business enterprises and improves off-farm income share. In addition, the impact of rural electrification is substantial when complementary factors, such as roads, markets, and financial services, are concurrently deployed. These findings highlight that access to electricity can be critical in accelerating structural transformation and that policymakers should complement electrification programs with investments in those key infrastructural facilities