Local Economic Impacts of Hydroelectric Power Plants: Evidence from Brazil

This paper evaluates the short- and medium-run effects of large hydroelectric power plant (HPP) construction on the economic development of Brazilian municipalities. Using the synthetic control method, we estimate the effects for 82 municipalities affected by HPP construction between 2002 and 2011. The average impact follows an inverted U-shape over a five-year horizon. The median impact in the medium run is positive but modest, with no effect on the composition of local economic activity. However, the estimated effects are highly heterogeneous. Five years after construction, the median impact on GDP growth rate is close to zero, while the 75th percentile of the treatment effects distribution is a 6.7 percentage points increase, and the 25th percentile is a 7.9 percentage points decrease. These results do not support the argument that large construction works unequivocally spur local development.