Do regulation and institutional design matter for infrastructure sector performance ?

This paper evaluates the impact of economic regulation on infrastructure sector outcomes. It tests the impact of regulation from three different angles: aligning costs with tariffs and firm profitability; reducing opportunistic renegotiation; and measuring the effects on productivity, quality of service, coverage, and prices. The analysis uses an extensive data set of about 1,000 infrastructure concessions granted in Latin America from the late 1980s to the early 2000s. The analysis finds that as the theory indicates, regulation matters. The empirical work here reported shows that in three relevant economic aspects-aligning costsand tariffs; dissuading renegotiations; and improving productivity, quality of service, coverage, and tariffs-the structure, institutions, and procedures of regulation matter. Thus, significant efforts should continue to be made to improve the structure, quality, and institutionality of regulation. Regulation matters for protecting both consumers and investors, for aligning closely financial returns and the costs of capital, and for capturing higher levels of benefits from the provision of infrastructure services by the private sector.Emerging Markets,Debt Markets,Private Participation in Infrastructure,Infrastructure Economics,Infrastructure Regulation

The impact of privatization on the performance of the infrastructure sector : the case of electricity distribution in Latin American countries

The authors analyze the impact of privatization on the performance of 116 electric utilities in 10 Latin American countries. The analysis makes a number of contributions to the literature on changes in infrastructure ownership. First, this is the first systemic analysis of the impact of privatization on the distribution of the electricity sector. Second, it constructs an unbalanced panel data set of key indicators for each country. Third, it includes a broader-than in past studies-range of indicators, such as output, employment, productivity, efficiency, quality, coverage, and prices, offering a fuller picture of the effects of privatization on consumers. Fourth, this research covers a longer period of time, and evaluates three stages-before, transition, and after-allowing for the identification of the short- and long-run effects of privatization, as opposed to previous analyses'short time series data that do not identify long-run outcomes. Finally, the counterfactual is considered through the analysis in trends. The authors apply two different methodologies. The first methodology uses means and medians from each period and tests the significance of the changes between periods. The second methodology consists of an econometric model that captures firm fixed effects, firm-specific time trends, and heteroscedasticity corrections. When needed, the authorsused firm-specific time trends to better understand the outcomes. The results suggest that changes in ownership generate significant improvements in labor productivity, efficiency, and product and service quality, and that most of those changes occur in the transition period. Improvements in the post transition period-beyond two years after the change in ownership-are much more modest.Economic Theory&Research,Energy Production and Transportation,Public Sector Economics&Finance,Labor Markets,Science Education

Regulatory governance and sector performance : methodology and evaluation for Electricity distribution in Latin America

This paper contributes to the literature that explores the link between regulatory governance and sector performance. The paper develops an index of regulatory governance and estimates its impact on sector performance, showing that indeed regulation and its governance matter. The authors use two unique databases: (i) the World Bank Performance Database, which contains detailed annual data for 250 private and public electricity companies in Latin America and the Caribbean; and (ii) the Electricity Regulatory Governance Database, which contains data on several aspects of the governance of electricity agencies in the region. The authors run different models to explain the impacts of change in ownership and different characteristics of the regulatory agency on the performance of the utilities. The results suggest that the mere existence of a regulatory agency, regardless of the utilities'ownership, has a significant impact on performance. Furthermore, after controlling for the existence of a regulatory agency, the ownership dummies are still significant and with the expected signs. The authors propose an experience measure in order to identify the gradual impact of the regulatory agency on utility performance. The results confirm this hypothesis. In addition, the paper explores two different measures of governance, an aggregate measure of regulatory governance, and an index based on principal components, including autonomy, transparency, and accountability. The findings show that the governance of regulatory agencies matters and has significant effects on performance.National Governance,Infrastructure Regulation,Governance Indicators,Banks&Banking Reform,Emerging Markets

Governance in state-owned enterprises revisited : the cases of water and electricity in Latin America and the Caribbean

This paper studies the governance structure of state-owned enterprises in the water and electricity sectors of Latin America and the Caribbean. Through a unique dataset, the paper compares 44 leading state companies of the region based on an aggregate measure of corporate governance and six salient aspects of their design: board, chief executive officer, performance orientation, management, legal framework, and transparency/disclosure. The results indicate the need for improvement in areas such as the selection and appointment of directors to the board and the performance-orientation of the enterprises. The paper also highlights the importance of discussing the management of state-owned enterprises in the wider context of public sector governance, with particular focus on accountability. Moreover, it recognizes the role of accountability as central in the management of state-owned enterprises, recommending a better understanding of regulation and performance management. The paper finds a positive correlation between corporate governance and the utilities'performance. Among the different aspects of corporate governance, performance orientation and professional management seem to be the highest contributors to well-performing state-owned enterprises. State-owned enterprises in the electricity sector show higher governance levels than those in the water sector.National Governance,Corporate Law,Private Participation in Infrastructure,Governance Indicators,Banks&Banking Reform

Entrepreneurship capital and technical efficiency : the role of new business / firms as a conduit of knowledge spillovers

Increasingly, entrepreneurship is being discussed and considered as a source of high economic growth and competitiveness. A conceptual process of creative construction that characterizes the dynamics between entrants and incumbents can prove quite useful to analyze the impact of countries'entrepreneurship capital on economic performance and can be a guide for economic policy. This paper applies a Stochastic Frontier Analysis approach to test the hypothesis that entrepreneurship capital promotes economic performance by serving as a conduit of knowledge spillovers. In addition, kernel density functions are employed to analyze convergence (or divergence) in the efficiency estimated for individual countries. The empirical evidence and results here tend to support the hypothesis. Specifically, the empirical analysis shows that the rate of expenditure on research and development in relation to new businesses registered has a positive and significant effect in increasing technical efficiency. These factors facilitate the dissemination of existing knowledge, develop entrepreneurship capital, and thus provide the missing link to economic performance -- entrepreneurship capital. The authors also show the trends and dynamics of changes in countries’ technical efficiency.Economic Theory&Research,Agricultural Knowledge&Information Systems,Labor Policies,E-Business,Knowledge for Development

Price caps, efficiency payoffs, and infrastructure contract renegotiation in Latin America

Twenty years ago, as the United Kingdom was getting ready to launch the privatization of its public services, Professor Littlechild developed and operationalized the concept of price caps as a regulatory regime to control for residual monopoly conditions in those services. Ten years later, Latin American countries, as they embarked into their own infrastructure reforms, also adopted the price cap regulatory model. Relying on a large data base on the factors driving contract renegotiation in the region and a survey of the literature on efficiency gains, the authors assess the impact of this regulatory regime in Latin America. They show that while the expected efficiency gains were amply achieved, these gains were seldom passed on to the users. Instead they were shared by the government and the firms. Moreover, the adoption of price caps implied higher costs of capital and hence, tariffs, and brought down levels of investment.International Terrorism&Counterterrorism,Decentralization,Labor Policies,Banks&Banking Reform,Environmental Economics&Policies,Banks&Banking Reform,Environmental Economics&Policies,International Terrorism&Counterterrorism,Water Supply and Sanitation Participation,Community Participation in Water Supply and Sanitation

Assessing the governance of electricity regulatory agencies in the Latin American and the Caribbean region : a benchmarking analysis

This paper focuses on an evaluation and benchmarking of the governance of regulatory agencies in the electricity sector in Latin American Countries (LAC). Using a unique database, we develop an index of regulatory governance and rank all the agencies in the LAC countries. The index is an aggregate number of the evaluation of four key governance characteristics: autonomy, transparency, accountability, and regulatory tools, including not only formal aspects of regulation but also indicators related to actual implementation. Based on 18 different indexes, we analyze the positions of agencies with regard to different aspects of their regulatory governance, considering not only performance in each variable but also scores in the different components of each category. This evaluation allows for the identification of particular country shortcomings regarding governance, and indicates needed improvements. Although the region shows an overall good governance design of their regulatory agencies, the implementation of the independent regulator model still faces several challenges. This is particularly evident in political autonomy and in the informal aspects of governance, where the region shows the largest number of countries with the lowest scores. Trinidad and Tobago and Brazil show the best results and Ecuador, Honduras, and Chile the poorest performances. The rest of the countries vary according to the different indexes. We give each governance variable equal weights and positively test the robustness of our approach using Principal Component Analysis.National Governance,Governance Indicators,Public Sector Corruption&Anticorruption Measures,Country Strategy&Performance,Banks&Banking Reform

Improving logistics costs for transportation and trade facilitation

Access to basic infrastructure services - roads, electricity, water, sanitation - and the efficient provision of the services, is a key challenge in the fight against poverty. Many of the poor (and particularly the extreme poor) in rural communities in Latin America live on average 5 kilometers or more from the nearest paved road, which is almost twice as far as non-poor rural households. There have been major improvements in access to water, sanitation, electricity, telecommunications, ports, and airports, but road coverage has not changed much, although some effort and resources have been invested to improve the quality of road networks. This paper focuses on the main determinants of logistics costs and physical access to services and, whenever possible, provides evidence of the effects of these determinants on competitiveness, growth, and poverty in Latin American economies. The analysis shows the impact of improving infrastructure and logistics costs on three fronts - macro (growth), micro (productivity at the firm level), and poverty (the earnings of poor/rural people). In addition, the paper provides recommendations and solutions that encompass a series of policies to reduce the prevalent high logistics costs and limited access to services in Latin America. The recommendations rely on applied economic analysis on logistics and trade facilitation.Transport Economics Policy&Planning,Economic Theory&Research,E-Business,Banks&Banking Reform,Transport and Trade Logistics