The political economy of energy regulation in OECD countries

This paper examines the effect of government ideology, political factors and globalization on energy regulation in electricity and gas industries using the bias-corrected least square dummy variable model in a panel of 23 OECD countries over the period of 1975-2007. We find that left-wing governments promote regulation in gas and electricity sectors. Also, less politically fragmented institutions contribute to deregulation of gas and electricity industries. Long tenures of incumbent government have limited impact on regulation in electricity sector, while it is associated with an increase in regulation of gas sector. Further, we find that higher political constraints and more globalized countries lead to deregulation in electricity and gas sectors. We discover that economic and social integration are the forces that promote deregulation in the gas industry, whereas political integration advance deregulation in the electricity industry. We emphasize that political economy factors are important determinants of energy regulation.

► We examine the effect of government ideology on energy regulation in 23 OECD countries. ► The bias-corrected least square dummy variable (LSDVC) model is employed. ► Left-wing governments are associated with an increase in regulation in energy sectors. ► Less politically fragmented institutions lead to a deregulation of gas and electricity industries. ► Institutional constraints and more globalized countries deregulate electricity and gas sectors.