Unveiling the Nexus between Access to Electricity, Firm Size and SME’s Performance in Bangladesh: New Evidence Using PSM

Abm Munibur Rahman,Muhammad Usman,Marcela Sokolová,Shuai Chuanmin,Zahid Ali,Mohammad Abir Shahid Chowdhury,Ahsan Akbar

doi:10.3390/en14206493

Abstract

Uninterrupted availability of energy and power resources is essential for the productivity and smooth functioning of an enterprise. However, constrained by financial resources, smaller firms in developing economies face a plethora of challenges concerning the access to electricity. However, less attention has been paid in the extant literature to explore this phenomenon. The present study investigates the impact of access to electricity on labor productivity in Bangladesh in the presence of electricity constraints, electricity obstacles, and SME firm size. It employs the OLS regression and propensity score matching (PSM) technique for treatment effect to deal with the selection bias and endogeneity issue using the World Bank Enterprise Survey’s cross-sectional firm-level data for 3196 sample firms over the period of 2007–2013. The results provide evidence in support of SMEs’ labor productivity in response to electricity access. Lack of electricity access was partially found to affect SMEs’ labor productivity significantly negatively. Further, the results show a positive impact of firm size on firm performance. However, results from this model appear that constrained SMEs’ access to electricity has a negative relationship with firm performance. The article then suggests several policy implications on changing government regulations regarding the efficient use of renewable energy resources to enhance electricity generation for optimized SME performance and sustainable economic development in Bangladesh.

Highlights

IntroductionSmaller and poverty stricken economies face the dilemma of a substantial energy shortfall which hinder their ability to fuel rapid economic development
Electricity access is considered a central pillar in enhancing SME labor productivity through numerous channels, such as improving infrastructural development, changes in national energy policy, implementing sustainable energy policy to promote more SMEs participation in national and regional level, especially in middle income countries
This study explored the linkage between electricity constraints and firm size individual effect on firm performance

Summary

Introduction

Smaller and poverty stricken economies face the dilemma of a substantial energy shortfall which hinder their ability to fuel rapid economic development. The growth of small and medium-sized enterprises assists domestic economic development in developing and under-developing countries since small firms generate jobs, return on investments, and more economic synergy among small and medium enterprises, boosting the domestic multiplier outcome in companies [1,2]. Labor productivity in low and middle-income countries is crucial to identify the impact of key drivers of a firm’s performance rather than more developed nations [5,6]. Constraint in access to electricity due to high costs, inadequate expansion in the electricity sector, power outages, and vulnerable supply may lead to poor productivity and hinder the participation of firms on a larger scale in low-and middle-income countries [7]

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Conclusion