To what extent do infrastructure and financial sectors reforms interplay? Evidence from panel data on the power sector in developing countries

The main goal of this study is to demonstrate the existence of a significant empirical link between infrastructure and financial sectors reforms the effects of which are reflected in infrastructure sectors performance. This paper reports on the findings of an exploration of this issue for the case of the power sector in developing countries. We estimate the impact of the four main components of the power sector reform in these countries, namely, the creation of an independent regulatory agency, the unbundling of generation, transmission, and distribution, the introduction of competition and the implementation of privatization programs in the generation and distribution segments, on some of this sector’s performance outcomes, and attempt to assess the contribution of the domestic financial systems’ reforms to these outcomes. In a dataset on 42 developing countries covering the 1990-2005 period, we find that private participation in generation and distribution has significantly improved power supply as reflected in higher electricity generation per capita and technical and labor efficiency in the distribution segment. The unbundling of generation, transmission, and distribution has contributed to improving productive efficiency through a better use of the labor factor in the distribution segment. We find that the creation of a separate regulatory agency has boosted the generation segment in terms of both capacity and sales and has generated better incentives for a more efficient use of labor input in the distribution segment. We also find that regulatory experience has significantly contributed to improving access to electricity. The results suggest that while the power sector, in particular, its generation segment, has significantly benefited from the introduction of independent regulation, the beneficial effects of (good) regulatory practices have been exacerbated by the modernization of the financial systems. More specifically, improved financial systems have eased access to capital for operators allowing them to upgrade their networks and decrease power losses in distribution. The overall results obtained in this paper strongly recommend that along with reforming the power sector, policy makers in developing countries should implement the financial reforms that would deepen their domestic financial systems thus allowing them to recover the full benefits of these systems’ positive externalities on the performance of the sector.Developing countries, electricity industry performance, privatization, regulation, unbundling, competition, financial sector development

Telecommunications Technologies: Deployment in Developing Countries

This paper examines some policies pursued in developing countries for the provision of telecommunications services in rural areas. These policies significantly differ from those typically implemented in developed countries in their fundamental objectives, the technological strategies deployed and the market and institutional environments they rest on. A review of some representative experiences suggests that thinking about public utility reforms in this part of the world is quite a challenging exercise. We point out some economic and institutional characteristics of these countries that we believe normative analysis of the reforms should explicitly take into accountTelecommunications; Developing Countries; Universal Access

Has Algeria suffered from the dutch disease?

Algeria is strongly dependent on oil exports revenues to fuel its economy and following the 1986 oil counter-shock this country has experienced a persistent decline of its manufacturing sector. Although it has benefited from high oil prices over the last decades and implemented a myriad of economic reforms, Algeria has failed to develop its manufacturing sector and diversify its economy. One of the main mechanisms through which fluctuations in oil prices can constitute an impediment to the development of the manufacturing sector, and hence to long-term growth, in an economy that heavily relies on a natural resource exports is referred to in the literature as the Dutch disease. This paper aims to test whether or not Algeria’s economy has suffered from the main symptoms of this syndrome by analyzing data covering more than half-a-century. More specifically, we use annual data from 1960 to 2016 and investigate two important implications of this phenomenon that occur following an oil boom, namely, the spending effect and the resource movement effect. We perform some simple tests of these signs of the Dutch disease using a set of regressions while controlling for some other factors that could have led to similar economic symptoms. The results do not allow us to unambiguously claim that the Algerian economy has suffered from the Dutch disease over the period under study

To what extent do infrastructure and financial sectors reforms interplay? Evidence from panel data on the power sector in developing countries

The main goal of this study is to demonstrate the existence of a significant empirical link between infrastructure and financial sectors reforms the effects of which are reflected in infrastructure sectors performance. This paper reports on the findings of an exploration of this issue for the case of the power sector in developing countries. We estimate the impact of the four main components of the power sector reform in these countries, namely, the creation of an independent regulatory agency, the unbundling of generation, transmission, and distribution, the introduction of competition and the implementation of privatization programs in the generation and distribution segments, on some of this sector’s performance outcomes, and attempt to assess the contribution of the domestic financial systems’ reforms to these outcomes. In a dataset on 42 developing countries covering the 1990-2005 period, we find that private participation in generation and distribution has significantly improved power supply as reflected in higher electricity generation per capita and technical and labor efficiency in the distribution segment. The unbundling of generation, transmission, and distribution has contributed to improving productive efficiency through a better use of the labor factor in the distribution segment. We find that the creation of a separate regulatory agency has boosted the generation segment in terms of both capacity and sales and has generated better incentives for a more efficient use of labor input in the distribution segment. We also find that regulatory experience has significantly contributed to improving access to electricity. The results\ud suggest that while the power sector, in particular, its generation segment, has significantly benefited from the introduction of independent regulation, the beneficial effects of (good) regulatory practices have been exacerbated by the modernization of the financial systems. More specifically, improved financial systems have eased access to capital for operators allowing them to upgrade their networks and decrease power losses in distribution. The overall results obtained in this paper strongly recommend that along with reforming the power sector, policy makers in developing countries should implement the financial reforms that would deepen their domestic financial systems thus allowing them to recover the full benefits of these systems’ positive externalities on the performance of the sector

Is the level of financial sector development a key determinant of private investment in the power sector ?

This paper seeks to assess the extent to which a country's overall level of development and that of its financial sector, in particular, are factors that attract private capital into infrastructure projects. The authors investigate these effects in a 1990-2007 dataset on the power sector in 37developing countries. The results suggest that economic growth is a key determinant of private investors'investment in infrastructure projects, and that investors tend to take countries’ governance quality into account in their decisions to invest. The empirical results highlight that the development of the financial sector also plays a significant role in private investors'decisions to enter infrastructure sectors. In particular, the degree of country risk and exchange rate volatility is found to be negatively related to the volume of private sector investment in power projects. Furthermore, when the banking sector and the capital market are separately treated in the analysis, the existence of a well functioning capital market is the main attracting factor. In addition, the existence of an independent energy regulatory authority significantly improves the level of private investors'implication in energy projects. When accounting for the interactions between the overall economic development and the financial sector development variables, the effects of these variables are still significant and the results also confirm the importance of an independent energy sector regulator.Emerging Markets,Debt Markets,Economic Theory&Research,Access to Finance,Private Participation in Infrastructure

Has Algeria suffered from the dutch disease?

Algeria is strongly dependent on oil exports revenues to fuel its economy and following the 1986 oil counter-shock this country has experienced a persistent decline of its manufacturing sector. Although it has benefited from high oil prices over the last decades and implemented a myriad of economic reforms, Algeria has failed to develop its manufacturing sector and diversify its economy. One of the main mechanisms through which fluctuations in oil prices can constitute an impediment to the development of the manufacturing sector, and hence to long-term growth, in an economy that heavily relies on a natural resource exports is referred to in the literature as the Dutch disease. This paper aims to test whether or not Algeria’s economy has suffered from the main symptoms of this syndrome by analyzing data covering more than half-a-century. More specifically, we use annual data from 1960 to 2016 and investigate two important implications of this phenomenon that occur following an oil boom, namely, the spending effect and the resource movement effect. We perform some simple tests of these signs of the Dutch disease using a set of regressions while controlling for some other factors that could have led to similar economic symptoms. The results do not allow us to unambiguously claim that the Algerian economy has suffered from the Dutch disease over the period under study