Powering Up Developing Countries through Integration?
AbstractPower market integration is analyzed in a two countries model with nationally regulated firms and costly public funds. If generation costs between the two countries are too similar negative business-stealing outweighs efficiency gains so that following integration welfare decreases in both regions. Integration is welfare-enhancing when the cost difference between the two regions is large enough. The benefit from export profits increases total welfare in the exporting country, while the importing country benefits from lower prices. This is a case where market integration also improves the incentives to invest compared to autarky. The investment levels remain inefficient though. With generation facilities over-investment occurs sometimes, while systematic under-investment occurs for transportation facilities. Free-riding reduces the incentives to invest in these public-good components, while business-stealing tends to reduce the capacity for financing new investment.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3872.
Date of creation: 2012
Date of revision:
regulation; competition; market integration; investment; electricity;
Other versions of this item:
- Auriol, Emmanuelle & Biancini, Sara, 2013. "Powering up developing countries through integration ?," Policy Research Working Paper Series 6494, The World Bank.
- L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F15 - International Economics - - Trade - - - Economic Integration
- R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock
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