Rural electrification, migration and structural transformation: Evidence from Ethiopia

• Electrification and industrialisation of developing economies are closely linked. This study assessed whether electrification of rural areas can help to induce structural economic transformation, and whether it has an effect on in-country migration patterns.
• We found that Ethiopia’s rural electrification policies led to structural transformation of village economies.
• Villages that got electrified between 2012 and 2014 had substantially more farmers participate in irrigation schemes, and higher agricultural yields.The number of households operating non-agricultural businesses roughly doubled in electrified villages, with the majority of new businesses in retail and wholesale trade.
• Electrified villages were 26% less likely to be net senders of migrants than villages that did not get electrified.

Many households and firms in Ethiopia do not have access to grid-based electricity, especially in rural areas. For many people, access to electricity is necessary in order to move from subsistence farming to more productive economic activities. As a result, people move to more urban areas for better employment opportunities and living conditions. This can put a strain on resources and infrastructure in urban centres.

This study therefore tested the hypothesis that electrification of rural areas could increase production and consumption. We predicted that villages with electricity would see less out-migration and more in-migration than villages without electricity as a result.

Our findings show that the benefits of rural electrification include raising agricultural productivity and allowing for non-agricultural business creation, and not just bringing lights and television to villages. Policymakers should take this concrete benefit of improvement in village productivity into consideration when deciding how to allocate scarce resources to rural electrification projects versus other investments.

We also found that electrifying villages substantially reduces the number of migrants that leave the village, which may reduce the strain on public infrastructure in Addis Ababa and other urban centers. This side benefit of rural electrification projects is relevant for urban planning, for forecasting population patterns, and for regional development policy more generally.