The CRC Series on Competition, Regulation and Development
Edited by Paul Cook, Colin Kirkpatrick, Martin Minogue and David Parker
Chapter 4: Economic regulation in developing countries: a framework for critical analysis
David Parker and Colin Kirkpatrick INTRODUCTION In the 1990s more than 120 developing countries introduced private investment in infrastructure schemes in the public utilities (Gray, 2001, p. 2). Traditionally the public utilities – electricity, gas, water services, telecommunications and transport – have been associated with economies of scale and scope in production that rule out competition in the market. For much of the last century state ownership of public utilities was the preferred option in most countries, including developing ones. Private-sector monopolies are not attractive given the possible threat of abuse of market power. More recently, however, in the face of evidence of ‘state failure’, the emphasis in public policy has switched from direct state ownership to private ownership but with state regulation. State regulation is the means by which the state attempts to affect private sector behaviour. Economic regulation by government is associated with righting ‘market failures’, including ameliorating the perceived adverse consequences of private enterprise including its income and wealth distribution effects. An additional argument lies in the role of the state as a facilitator of economic growth. From the 1960s to the 1980s it was fashionable to promote industrialisation through import substitution, in which the state played a primary role as a regulator of both domestic and external trade and as a direct investor in industry and agriculture. However, following the apparent successes of privatisation and market liberalisation programmes in developed economies, including Europe and North America, and evidence of government failure in developing ones (World Bank, 1995), since...
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