Commitment and Regulatory Independence in Practice in Latin American and Caribbean Countries

Abstract

We present an analysis of the evolution of regulatory independence in practice for 23 Latin American and Caribbean countries in the telecommunications industry. Based on this analysis, we construct realistic indices of regulatory independence, which improve upon the measures of independence that have been used so far in the empirical regulation literature. We show that legal indices may give a partially distorted picture of the commitment ability of institutions. The combination of de facto and de jure independence has a positive (probably modest) impact on network penetration in telecommunications markets, although treating independence as exogenous may underestimate its impact.

Paving the Way for Better Telecom Performance: Evidence from the Telecommunication Sector in MENA Countries

“…Wallsten (2003), using a large sample of 200 countries, finds that establishing an independent regulator is rarely and negatively significant and is correlated with the number of mainlines, mainlines per capita and investment, but it is correlated positively and significantly with the number of cellular subscribers. In their panel data analysis, Trillas and Montoya (2011) confirm that regulator independence is associated with higher network penetration, but the magnitude and statistical significance of this impact are low and difficult to assess.…”

“…In the infrastructure industries, the importance of institutions, specifically for the developing countries, was mainly to address the underinvestment problem that occurs due to the sunk nature of the investments needed. Thus, having an independent regulator is considered to be a credible solution to alleviate the time inconsistency problem faced by investors (Trillas and Montoya 2011). The claim offered by politicians to justify the transfer of powers to a specific regulatory agency is that countries with independent regulators will achieve better policy outcomes than countries without independent regulators or that countries with more independent regulators will achieve better policy outcomes than countries with fewer independent regulators (Hanretty and Koop 2012).…”

“…The claim offered by politicians to justify the transfer of powers to a specific regulatory agency is that countries with independent regulators will achieve better policy outcomes than countries without independent regulators or that countries with more independent regulators will achieve better policy outcomes than countries with fewer independent regulators (Hanretty and Koop 2012). Although, in theory, other mechanisms could solve for the time inconsistency problem faced by regulators, the literature notes that it is difficult for developing countries to find credible alternative to an independent regulatory agency (Trillas and Montoya 2011).…”

“…We use this method to measure productivity, because we do not have the number of telecom employees per segment. We find that dividing the number of mainlines by the number of staff employed by telecom operators is not reliable, as used in(Ros 1999;Ros 2003;Fink et al 2001;Fink et al 2003;Wallsten 2001;Li and Xu 2004;Gual and Trillas 2006;Gasmi et al 2013;Trillas and Montoya 2011).16 Given by the ITU Database (2011).17 In this survey, ITU defines separate as "independent" in terms of finance, structure, and decision making from the operator(s) and the sector's Ministry.18 We prefer to construct an index to reflect regulatory powers and functions, but limited published information for the whole period prevent us from doing so because we have only one year per country data. As stated byWallsten (2001), "Acquiring such information-especially for developing countries-is a Herculean task".…”

“…This measure is used by different authors(Ros 1999;Ros 2003;Fink et al 2001;Fink et al 2003;Wallsten 2001;Li and Xu 2004;Gual and Trillas 2006;Gasmi et al 2013;Trillas and Montoya 2011).15 This measure is used in different studies(Ros 1999;Ros 2003;Gutiérrez 2003;Li and Xu 2004;Gual and Trillas 2006;Gasmi et al 2013). We use this method to measure productivity, because we do not have the number of telecom employees per segment.…”