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Does sequencing matter? regulation and privatization in telecommunications reforms

  • Wallsten, Scott
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    The question of the most effective order of reforming state-owned enterprises has been hotly debated over the years. In the early 1990s, many western advisers encouraged Eastern European countries, and the former Soviet Union, to privatize firms quickly under the assumption that market institutions would develop once firms were privately owned. The thinking since then has emphasized the importance of establishing an institutional framework conducive to promoting competition before privatizing firms. To date, there has been little empirical work clarifying the debate. The author attempts to address this gap, by examining the effects of the sequence of reform in telecommunications, particularly the effects of establishing a regulatory authority, prior to privatizing incumbent telecommunications firms. Consistent with current thinking, the author finds that countries that established separate regulatory authorities, prior to privatization, saw increased telecommunications investment, fixed telephone penetration, and cellular penetration compared with countries that did not. Moreover, he finds that investors are willing to pay more for telecommunications firms, in countries that established a regulatory authority before privatization. This increased willingness to pay is consistent with the hypothesis that investors require a risk premium to invest, where regulatory rules remain unclear.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2817.

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    Date of creation: 30 Apr 2002
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    Handle: RePEc:wbk:wbrwps:2817
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    1. Lars-Hendrik Roller & Leonard Waverman, 2001. "Telecommunications Infrastructure and Economic Development: A Simultaneous Approach," American Economic Review, American Economic Association, vol. 91(4), pages 909-923, September.
    2. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
    3. Spiller, Pablo T, 1996. "Institutions and Commitment," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 421-52.
    4. Roland, Gerard, 1994. "On the Speed and Sequencing of Privatisation and Restructuring," Economic Journal, Royal Economic Society, vol. 104(426), pages 1158-68, September.
    5. Wallsten, Scott J, 2001. "Telecommunications Investment and Traffic in Developing Countries: The Effects of International Settlement Rate Reforms," Journal of Regulatory Economics, Springer, vol. 20(3), pages 307-23, November.
    6. Wallsten, Scott J, 2001. "An Econometric Analysis of Telecom Competition, Privatization, and Regulation in Africa and Latin America," Journal of Industrial Economics, Wiley Blackwell, vol. 49(1), pages 1-19, March.
    7. Megginson, William L & Nash, Robert C & van Randenborgh, Matthias, 1994. " The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis," Journal of Finance, American Finance Association, vol. 49(2), pages 403-52, June.
    8. Ben A. Petrazzini, 1996. "Competition in Telecoms-Implications for Universal Service and Employment," World Bank Other Operational Studies 11603, The World Bank.
    9. Winston, Clifford, 1993. "Economic Deregulation: Days of Reckoning for Microeconomists," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1263-89, September.
    10. Ros, Agustin J, 1999. "Does Ownership or Competition Matter? The Effects of Telecommunications Reform on Network Expansion and Efficiency," Journal of Regulatory Economics, Springer, vol. 15(1), pages 65-92, January.
    11. Stiglitz, Joseph, 1999. "Promoting Competition in Telecommunications," UADE Working Papers 2_1999, Instituto de Economía, Universidad Argentina de la Empresa.
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