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The Political Economy of Electricity Market Liberalization: A Cross-country Approach

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  • Erkan Erdogdu

    (Judge Business School, University of Cambridge)

Abstract
More than half of the countries in the world have introduced a reform process in their power sectors and billions of dollars have been spent on liberalizing electricity markets around the world. Ideological considerations, political composition of governments and educational/professional background of leaders have played and will play a crucial role throughout the reform process. Adapting a political economy perspective, this paper attempts to discover the impact of political economy variables on the liberalization process in electricity markets. Empirical models are developed and analyzed using panel data from 55 developed and developing countries covering the period 1975–2010. The research findings suggest that there is a significant negative relationship between electricity market liberalization and the size of industry sector, meaning that countries with larger industry sectors tend to liberalize less. Also, we detect a negative correlation between polity score and power sector liberalization, that is; it cannot be argued that liberalization policies are stronger in more democratic countries. On the other hand, our results imply that countries that receive foreign financial aid or assistance are more likely to liberalize their electricity markets. In OECD countries, single-party governments accelerate the reform process by reducing public ownership and vertical integration. Moreover, we detect a negative relationship between the years the chief executive has been in office and the reform progress in OECD countries. Furthermore, we identify a decrease in vertical integration in electricity industry during the terms of parties with “right” or “left” ideologies in OECD countries. Additionally, professional and educational background of head of executive branch (prime minister, president and so on) seem to have very significant impact on reform process in OECD countries, but this is not the case in non-OECD countries. Leaders with a professional background as entrep
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Suggested Citation

  • Erkan Erdogdu, 2012. "The Political Economy of Electricity Market Liberalization: A Cross-country Approach," Working Papers EPRG 1212, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1212
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    Cited by:

    1. Imam, M. & Jamasb, T. & Llorca, M., 2019. "Political Economy of Reform and Regulation in the Electricity Sector of Sub-Saharan Africa," Cambridge Working Papers in Economics 1949, Faculty of Economics, University of Cambridge.
    2. Ullah, Kafait & Arentsen, Maarten J. & Lovett, Jon C., 2017. "Institutional determinants of power sector reform in Pakistan," Energy Policy, Elsevier, vol. 102(C), pages 332-339.
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    4. Yanrui Wu, 2012. "Electricity Market Integration Global Trends and Implications for the EAS Region," Economics Discussion / Working Papers 12-19, The University of Western Australia, Department of Economics.
    5. Baek, Chulwoo & Jung, Euy-Young & Lee, Jeong-Dong, 2014. "Effects of regulation and economic environment on the electricity industry׳s competitiveness: A study based on OECD countries," Energy Policy, Elsevier, vol. 72(C), pages 120-128.

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    More about this item

    Keywords

    Electric utilities; industrial policy; political economy;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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