The World Bank Economic Review Advance Access originally published online on March 23, 2006
The World Bank Economic Review 2006 20(1):115-141; doi:10.1093/wber/lhj004
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The Impact of Regulatory Governance and Privatization on Electricity Industry Generation Capacity in Developing Economies
John Cubbin is a professor of economics at City University in London; his email address is j.s.cubbin{at}city.ac.uk.
Jon Stern is a regulation initiative associate at London Business School; his email address is jstern{at}london.edu.
This article assesses whether a regulatory law and higher quality regulatory governance are associated with superior outcomes in the electricity industry. The analysis, for 28 developing economies over 1980–2001, draws on theoretical and empirical work on the impact of telecommunications regulators in developing economies. Controlling for privatization and competition and allowing for country-specific fixed effects, both regulatory law and higher quality regulatory governance are positively and significantly associated with higher per capita generation capacity. This positive impact increases for more than 10 years, as experience develops and regulatory reputation grows. The results are robust to estimating alternative dynamic specifications (including error correction models), to inclusion of economy governance political risk indicators, and to controlling for possible endogeneity biases. The article concludes with a short discussion of causality in panel data modeling of governance models and the policy implications for regulatory reform.