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Infrastructure restructuring and regulation - building a base for sustainable growth

Listed author(s):
  • Alexander, Ian
  • Estache, Antonio

The link between economic growth, and better provision of infrastructure services may be unproven, but it is clear that reforms to make infrastructure services more competitive (where possible), and to provide strong, and independent economic regulation of natural monopolies, do create an environment more conducive to: 1) Private sector participation in infrastructure investments. 2) companies trying to cut costs, and pass the savings on to consumers. 3) Better provision of services (through faster rollout of infrastructure, for example, and through innovative solutions for delivering services to customers who are not connected to an existing network). It is important that policymakers make the right decisions when deciding how to restructure infrastructure. First, they should review the evidence on the impact various types of reform have had. The authors provide an overview of the evidence from - and lessons learned in - Latin America, one of the first regions to undertake wholesale reform of its infrastructure service provides. Among their conclusions: a) the reform of utility, and infrastructure industries is vital to economic growth. b) Apparently well-founded, but wrong decisions can damage growth prospects. C) Reform should combine changes in industry structure, ownership, and (through effective regulation) behavior. To minimize the risk of misconduct by infrastructure companies, the government should introduce: i) As much competition as possible (after evaluating all tradeoffs). ii) Rules to limit (or eliminate) vertical, and horizontal ownership, which makes it difficult to regulate company behavior. iii) Rules to ensure that regulators get all the information they need, and that it is timely, consistent, and accurate.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2415.

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Date of creation: 31 Aug 2000
Handle: RePEc:wbk:wbrwps:2415
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