Powering up developing countries through integration ?
AbstractPower market integration is analyzed in a two-country model with nationally regulated firms and costly public funds. If the generation costs between the two countries are too similar, negative business stealing outweighs efficiency gains so that the subsequent integration welfare decreases in both regions. Integration is welfare enhancing when the cost difference between two regions is large enough. The benefits from export profits increase the total welfare in the exporting country, whereas the importing country benefits from lower prices. In this case, market integration also improves incentives to invest compared to autarky. The investment levels remain inefficient, however, especially for transportation facilities. Free riding reduces incentives to invest in these public-good components of the network, whereas business stealing tends to decrease the capacity to finance new investment.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 6494.
Date of creation: 01 Jun 2013
Date of revision:
Transport Economics Policy&Planning; Economic Theory&Research; Debt Markets; Markets and Market Access; Emerging Markets;
Other versions of this item:
- Emmanuelle Auriol & Sara Biancini, 2012. "Powering Up Developing Countries through Integration?," CESifo Working Paper Series 3872, CESifo Group Munich.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-24 (All new papers)
- NEP-DEV-2013-06-24 (Development)
- NEP-REG-2013-06-24 (Regulation)
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