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Privatisation, Regulation, and Competition in South Asia

  • T. N. Srinivasan

    (Yale University, USA.)

Privatisation has begun to accelerate in India and Pakistan. However, it is not clear that a change in ownership per se will contribute significantly to a more rapid, efficient, and equitable growth unless policies that ensure competition for these enterprises and remove distortions in factor markets also are undertaken at the same time or prior to privatisation. After a brief discussion of the transition from state-led development to more market-oriented policies and gradual opening to world markets, this paper reviews some of the analytical literature on privatisation and regulation. The translation of these theories into concrete policy suggestions is difficult for countries such as Pakistan and India, where many of the assumptions behind the theories do not hold. However, the results of empirical studies on past privatisations around the world do hold lessons for South Asia. Similarly, theories of regulation offer only broad recommendations, most notably (for South Asia) that regulation is not the best way to redistribute resources. The final section of the paper reviews India’s and Pakistan’s experience with privatisation thus far. Attempted privatisation of electricity in India serves as an example of the need for more attention to regulation, while the transfer of ownership has led to better service at lower cost in the telecommunications sector. Pakistan’s privatisation programme appears to have had similarly mixed results, though it is difficult to come to firm conclusions with the evidence at hand.

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Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 41 (2002)
Issue (Month): 4 ()
Pages: 389-422

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Handle: RePEc:pid:journl:v:41:y:2002:i:4:p:389-422
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  1. Laffont, Jean-Jacques & Tirole, Jean, 1990. "The regulation of multiproduct firms : Part I: Theory," Journal of Public Economics, Elsevier, vol. 43(1), pages 1-36, October.
  2. Florencio Lopez-de-Silane, 1996. "Determinants of Privatization Prices," NBER Working Papers 5494, National Bureau of Economic Research, Inc.
  3. Mohsin S. Khan, 2002. "New Issues in Bank Regulation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(4), pages 333-356.
  4. Jean-Jacques Laffont & Jean Tirole, 1988. "The Politics of Government Decision-Making: A Theory of Regulatory Capture," Working papers 506, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Jean Tirole & Jean-Jaques Laffont, 1985. "Using Cost Observation to Regulate Firms," Working papers 368, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Richard A. Posner, 1971. "Taxation by Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 22-50, Spring.
  7. Richard Schmalensee, 1989. "Good Regulatory Regimes," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 417-436, Autumn.
  8. Davies, David G, 1971. "The Efficiency of Public versus Private Firms, The Case of Australia's Two Airlines," Journal of Law and Economics, University of Chicago Press, vol. 14(1), pages 149-65, April.
  9. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
  10. Joskow, P.L., 1989. "Regulatory Failure, Regulatory Reform And Structural Change In The Electric Power Industry," Working papers 516, Massachusetts Institute of Technology (MIT), Department of Economics.
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