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Powering Up Developing Countries through Integration?

Author

Listed:
  • Emmanuelle Auriol

    (TSE - Toulouse School of Economics - Toulouse School of Economics)

  • Sara Biancini

    () (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

Power 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, subsequent to 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 a lower price. 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.

Suggested Citation

  • Emmanuelle Auriol & Sara Biancini, 2015. "Powering Up Developing Countries through Integration?," Post-Print halshs-00952178, HAL.
  • Handle: RePEc:hal:journl:halshs-00952178
    DOI: 10.1093/wber/lht021
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00952178
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    References listed on IDEAS

    as
    1. Estache, Antonio & Iimi, Atsushi, 2008. "Procurement efficiency for infrastructure development and financial needs reassessed," Policy Research Working Paper Series 4662, The World Bank.
    2. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November.
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    4. Pineau, Pierre-Olivier & Hira, Anil & Froschauer, Karl, 2004. "Measuring international electricity integration: a comparative study of the power systems under the Nordic Council, MERCOSUR, and NAFTA," Energy Policy, Elsevier, vol. 32(13), pages 1457-1475, September.
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    6. Auriol, Emmanuelle, 1998. "Deregulation and quality," International Journal of Industrial Organization, Elsevier, vol. 16(2), pages 169-194, March.
    7. Emmanuelle Auriol & Pierre M. Picard, 2008. "Infrastructure and Public Utilities Privatization in Developing Countries," World Bank Economic Review, World Bank Group, vol. 23(1), pages 77-100, November.
    8. Dermot Leahy & J. Neary, 2009. "Multilateral subsidy games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(1), pages 41-66, October.
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    Citations

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    Cited by:

    1. Emmanuelle Auriol & Antonio Estache & Liam Wren-Lewis, 2017. "Can Supranational Infrastructure Regulation Compensate for National Institutional Weaknesses ?," Working Papers ECARES ECARES 2017-11, ULB -- Universite Libre de Bruxelles.
    2. repec:eee:ecmode:v:68:y:2018:i:c:p:450-460 is not listed on IDEAS
    3. Antonio Estache, 2016. "Institutions for Infrastructure in Developing Countries: What We Know and the Lot We still Need to Know," Working Papers ECARES ECARES 2016-27, ULB -- Universite Libre de Bruxelles.

    More about this item

    Keywords

    electricity; competition; investment; regulation; market integration;

    JEL classification:

    • 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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