Electric power sector reform liberalization models and electric power prices in developing countries

This study aims to clarify whether the effects of electric power sector reforms should be different either across regions, or between developing and developed countries. An empirical model was analyzed to observe the impact of electric power prices on the selection of a liberalization model in the power sector. This was achieved by the use of an ordered response, fixed effect and a random effect model. An instrument variable technique was also used to estimate the impact of the liberalization model on the electric power price. This technique addressed the problems of simultaneity bias between the electric power price and the liberalization models selected. These econometric models were designed using panel data from 78 countries in four regions (developed countries, Asian developing countries, the former Soviet Union and Eastern Europe, and Latin America) for the period from 1985 to 2003. The research findings suggest that higher electricity prices are one of the driving forces for governments to adopt liberalization models. However, the development of liberalization models in the power sector does not necessarily reduce electricity prices. In fact, contrary to expectations, there was a tendency for the price to rise in every market modeled.