GEP 2021/05: The long-run gains from the early adoption of electricity

Abstract

This paper explores the effect of the early adoption of technology on local economic development. While timing and intensity of technology adoption are key drivers of economic divergence across countries, the immediate impact of new technologies within advanced countries has been elusive. Resolving this puzzle, this paper documents that the early adoption of electricity across late 19th century Switzerland was conducive to local economic development not just in the short-run, but also in the long-run. Exploiting exogenous variation in the potential to produce electricity from waterpower combined with rapid changes in power generation and transmission technology the evidence presented can plausibly be interpreted as causal. The main mechanism through which differences in economic development persist is increased human capital accumulation and innovation, rather than persistent differences in the way electricity is used.

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Authors

Björn Brey 

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