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Policy Reform and the Problem of Private Investment: Evidence from the Power Sector

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  • Johannes Urpelainen
  • Joonseok Yang

Abstract

Development economists frequently emphasize the importance of good infrastructure for economic growth. Can governments attract private capital in infrastructural investments through policy reform? We address this question by showing that, in the case of electricity generation, a simple legislation enabling independent power production increases private investment in electricity generation by more than an order of magnitude. Contrary to the conventional wisdom on the importance of constraints on executive power for credible commitment, we find that such constraints neither draw private capital nor condition the effectiveness of policy reform. We also find that both domestic and foreign investment increase with IPP reform. Evidence for these claims comes from an instrumental variable analysis of power sector reforms and private electricity generation in all developing countries for the years 1982 to 2008. Simple and politically uncontroversial policies can generate positive results in developing countries.

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  • Johannes Urpelainen & Joonseok Yang, 2017. "Policy Reform and the Problem of Private Investment: Evidence from the Power Sector," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 36(1), pages 38-64, January.
    • Handle: RePEc:wly:jpamgt:v:36:y:2017:i:1:p:38-64
    DOI: 10.1002/pam.21959
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    Cited by:

    1. Tiep, Nguyen Cong & Wang, Mengqi & Mohsin, Muhammad & Kamran, Hafiz Waqas & Yazdi, Farzaneh Ahmadian, 2021. "An assessment of power sector reforms and utility performance to strengthen consumer self-confidence towards private investment," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 676-689.
    2. Lisa Bagnoli & Salvador Bertomeu & Antonio Estache & Maria Vagliasindi, 2020. "Are the Poor Better Off with Public or Private Utilities ?A Survey of the Academic Evidence on Developing Economies," Working Papers ECARES 2020-24, ULB -- Universite Libre de Bruxelles.
    3. Halimatussadiah, Alin & Kruger, Wikus & Wagner, Fabian & Afifi, Fachry Abdul Razak & Lufti, Roes Ebara Gikami & Kitzing, Lena, 2024. "The country of perpetual potential: Why is it so difficult to procure renewable energy in Indonesia?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 201(C).

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