Reinventing the Third World State
New Horizons in Public Policy series
Edited by Willy McCourt and Martin Minogue
Chapter 8: Privatization and regulation in developing countries
Paul Cook INTRODUCTION Privatization has become a worldwide phenomenon in recent years. Defined as the transfer of productive assets from public to private ownership and control, privatization has particularly gained momentum in developing countries since the late 1980s. A significant proportion of privatization transactions in the developing economies have entailed sales of public utilities. Indeed, privatization transactions for the utilities sector have accounted for over a third of all transactions in developing countries since 1988 (Cook and Kirkpatrick, 1995). Privatization has not necessarily meant more competition. As a consequence, regulation of monopoly utilities has become a major policy issue. Regulatory structures and institutions are required to protect consumers from monopoly abuse and provide incentives to management and investor interests to maintain profitability, efficiency and investment. In practice it has been difficult for many developing countries to build sound regulatory systems that can effectively reconcile these potentially competing objectives. Research aimed directly at measuring the effectiveness of regulatory systems for privatized utilities in developing countries is scarce. Most has been confined to investigations in Latin America using a case-study approach, Wellenius and Stern (1994) for telecommunications, and Gilbert and Kahn (1996) for the electricity sector. More recent empirical work using econometric methods has been applied to Africa and Latin America for telecommunications (Wallsten, 1999) and to Argentina for gas, electricity, water and telecommunications using a computable general equilibrium model (Chisari et al., 1997). Greater attention has been paid to measuring the extent of privatization (Bennell, 1997). Relatively little emphasis has been...
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