Impacts of Capital Shock in the Electricity Sector of Bhutan

Abstract

Bhutan faces constraints in resources, including foreign direct investment (FDI) for economic development. To address this, the Indian government invests in Bhutan’s hydropower projects based on a unique foreign investment model. Incorporating the distinct features of foreign investment within a computable general equilibrium (CGE) framework, we find that Bhutan can significantly gain from foreign investment in the electricity sector. The gains are even higher with FDI in hydropower projects. Based on the study findings, we propose the national policymakers to open up hydropower projects to foreign investors by revising the country’s FDI policy.