Electricity regulation and FDIs spillovers in the OECD: A panel data econometric approach

The aim of this paper is to investigate the regulatory process in the electricity sector and determine the extent to which it has affected the level of Foreign Direct Investments (FDIs). For this purpose, we use an annual data set covering the period 1975-2010 and panel data econometric techniques. Our results suggest a feedback effect between electricity regulation and the attraction of FDIs in the OECD countries. This finding highlights the existence of a sound regulatory environment in the examined electricity sectors, implying that a liberalized and competitive electricity sector can be employed under specific settings by policy makers to attract FDIs. Further, we find a two-way Granger type causation between FDIs and effective regulation in the electricity sector, thus providing sufficient evidence that a proper regulatory environment is a prerequisite for increases in the level of FDIs.