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The World Bank Economic Review Advance Access published online on March 23, 2006
The World Bank Economic Review, doi:10.1093/wber/lhj004
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© The Author 2006. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

Article

The Impact of Regulatory Governance and Privatization on Electricity Industry Generation Capacity in Developing Economies

John Cubbin 1 * and Jon Stern 2

1 Professor of economics at City University in London
2 regulation initiative associate at London Business School

* To whom correspondence should be addressed.
John Cubbin, E-mail: j.s.cubbin{at}city.ac.uk


  Abstract

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.


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