The Hydropower Promise?

Large infrastructure projects, like hydropower projects, are increasingly expected to share benefits with local communities affected by their construction – but do benefit sharing mechanisms work? Because benefit-sharing is non-tax revenue and therefore unearned, there are reasons to be skeptical. Empirically evaluating benefit sharing is difficult as the trend towards benefit sharing is relatively recent, local communities do not always have a stake, and there is often no counterfactual.

This paper improves on these fronts by examining a particular benefit sharing mechanism that was put into place in British Columbia, Canada in the 1990s – the Columbia Basin Trust.

We utilise the synthetic control method and estimate the long-term causal effects of benefit sharing on the local community. We also examine the relationship between CBT board composition and grant awards to districts, testing whether political connections influence resource allocation.

Contrary to expectations, we find a small positive cumulative effect on local economic development. Our results show that non-tax transfers to local communities from hydropower are sometimes successful even when mechanisms are put in ex post and electoral accountability is absent.