OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

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Has Deregulation Increased Investment in Infrastructure?

Firm-Level Evidence from OECD Countries

This paper investigates the role played by deregulation on firms’ investment decisions in infrastructure sectors. The analysis covers the period 1980-2006, which was characterised by increased liberalisation and privatisation across OECD countries. We assess the relationship of different dimensions of the regulatory framework, such as the degree of barriers to entry, public ownership, vertical unbundling and the existence of an independent regulator with firm level investment behaviour. We find that the impact of regulation on investment is both sector and firm specific. A reduction in the degree of legal barriers to entry spurs investment in the electricity sector, but only for large firms. In telecommunications, the converse is true with barriers to entry having a negative effect on smaller firms’ investment rates. The existence of an independent regulatory authority spurs investment by telecommunication companies but this effect seems to be driven by large firms alone while it is associated with a reduction in investment levels by smaller companies in the gas sector. In Europe, the degree of vertical integration is positively associated with investment rates in the electricity sector.


Keywords: infrastructure, regulation, firm level data, investment
JEL: L94: Industrial Organization / Industry Studies: Transportation and Utilities / Electric Utilities; L95: Industrial Organization / Industry Studies: Transportation and Utilities / Gas Utilities; Pipelines; Water Utilities; D22: Microeconomics / Production and Organizations / Firm Behavior: Empirical Analysis; K2: Law and Economics / Regulation and Business Law; L5: Industrial Organization / Regulation and Industrial Policy; L96: Industrial Organization / Industry Studies: Transportation and Utilities / Telecommunications; L92: Industrial Organization / Industry Studies: Transportation and Utilities / Railroads and Other Surface Transportation
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