Why are People Energy Poor?: Evidence from Ethnic Fractionalization

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This article evaluates the impact of ethnic fractionalization on different indicators of energy poverty in Nepal. The empirical approach in this study exploits a plausibly exogenous variation in historical migration shocks to instrument for ethnic fractionalization. Regression results show that ethnic fractionalization leads to an increase in energy poverty among Nepalese households. In particular, energy poverty induced by ethnic fractionalization is severe among low-caste individuals, suggesting prospects of energy injustice in a caste-based hierarchical society. Among different channels, income appears to mediate the effect of ethnic fractionalization on energy poverty in the context of Nepal. A back-of-the-envelope calculation suggests that a significant drop in energy poverty from a change in income induced by ethnic fractionalization results in a national economic gain of approximately $3.2 million. Results indicate that policies aimed at enhancing local income can be effective in eradicating energy poverty in a developing country setting.