Household-level effects of electricity on income

- Between 1995-2011, Nepal experienced a sharp decline in poverty and an increase in access to electricity.
- Controlling for endogeneity, access to electricity increases consumption by 15.7% over not having access to electricity.
- An increased level of consumption or income in turn increases the probability of having access to electricity.

This paper studies the effect of electricity on income, using the Nepal Living Standards Survey-III (NLSSIII), carried out in the years 2010-11. To account for endogeneity issues, we use a Two Stage Probit Least Squares (2SPLS) model. We find that causality runs both ways. That is, income explains whether a household is connected to electricity, but also, a household being connected to electricity has a very large and significant effect on income.