Electricity infrastructure and firms’ investment efficiency: evidence from the power transmission of the Three Gorges Project in China

This paper employs the cross-regional power transmission of China’s Three Gorges Project (TGP) as a quasi-natural experiment. Using data from Chinese listed firms between 2000 and 2022 and a staggered difference-in-differences approach, we examine the impact of improved electricity infrastructure on firms’ investment efficiency. The results show that enhanced electricity infrastructure significantly reduces firms’ investment inefficiency, thereby improving investment efficiency. Mechanism analysis indicates that this effect operates primarily through alleviating financing constraints and increasing total factor productivity. Further heterogeneity tests reveal that the impact is more pronounced for small and large firms, firms located in regions with lower marketization levels, and firms in labour-intensive and asset-intensive industries. This study provides new empirical evidence on the microeconomic effects of infrastructure development.