The effect of electricity technical losses on Ghana’s economy: a simulation evaluation Kennedy Kwabena Abrokwa*, John Bosco Dramani** and Keshab Bhattarai*** *Lecturer, Ghana Institute of Management and Public Administration P. O. Box AH 50, Achimota, Accra, Ghana. Email: kabrokwa@gimpa.edu.gh **Lecturer, Department of Economics, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana. Email: boscodramani@knust.edu.gh ***Senior Lecturer, Hull Business School, University of Hull, Hull, UK. Email: k.r.bhattarai@hull.ac.uk Abstract This study investigates the effects of electricity distribution inefficiencies in Ghana’s electricity sector on output, consumption and investments. Inefficiencies are considered as losses in transmission and distribution channels from the generator to the final consumer of energy leading to supply–demand mismatch (shortages and blackouts). We assume that, a high inefficiency reflects high electricity cost in the sector. A simple dynamic version of the Ramsey growth model is developed, providing analytical solutions and applying simulations to evaluate the economic cost. Results from the simulations show that, electricity shortages and blackouts reduce output, consumption and investments in the economy. Improvements in energy technologies for generating and distributing electricity can offset the negative impacts and improve efficiency in the sector. 1. Introduction Mainstream economic growth theories suggest that the contributions of energy to economic growth are less significant. The standard neoclassical growth theory assumes that labour and capital matter most (Solow, 1956). Arguments in endogenous growth literature suggest that, GDP per capita is essentially driven by a process of capital accumulation and technology. Investment in technology has also been identified as having played a significant role (Romer, 1994; Aghion and Howitt 1998; Galor and Weil, 2000; Lucas, 2002; Barro and Sala-i-Martin, 2003; Galor, 2005; Aghion and Howitt, 2009). Thus, these mainstream growth theories do not include energy as a factor of production. Ayres et al. (2013) explain that two reasons could account for the neglect of energy as a factor of production: the cost share theorem and historically, near constant cost shares of energy. 1 Stern and Kander (2012), also note that, this neglect of energy in the production function could be attributed to the abundance of energy resources in recent decades. They attribute this to over simplification of energy constraints in growth theory © 2017 Organization of the Petroleum Exporting Countries. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA. 286