The Institutional Environment for Telecommunications Investment

This paper demonstrates that a structurally derived, internationally comparable index of checks and balances on executive discretion created by variation in political structures and party systems affects relative rates of basic telecommunications infrastructure deployment in 147 countries during the period 1960–1994. Models of infrastructure investment that omit the political characteristics of a prospective host country confound countries whose economic and demographic characteristics point to rapid demand growth for infrastructure services with those that create a potential trap for investors due to a higher probability of arbitrary change in the policy environment. The econometric analysis exploits both cross‐sectional and temporal variation in the panel. A robust covariance‐matrix estimator based on that developed by Newey and West is used to compute valid standard errors in the presence of heteroskedasticity and within unit‐serial correlation, two common characteristics in the error‐term structure of panel datasets.