Posted: July 28th, 2022

How has Private Participation Impacted the Effectiveness of the Electricity Sector in Developing Countries

How has Private Participation Impacted the Effectiveness of the Electricity Sector in Developing Countries?

 

This is to be examined using the two-stage least squares (2SLS) procedure. The main dataset for private participation in infrastructure comes from the World Bank (https://ppi.worldbank.org/en/ppidata). The electricity performance indicators can be sourced from various reputable sources, however these must be normalized. The second stage panel regression, should be estimated first before the first-stage regression.

 

Other relevant variables could include governance indicators, electricity sector regulation indicators etc.

 

SECOND STAGE

 

A panel regression looking at some measure of electricity sector performance (that must be normalised), regressing it on various variables that could affect performance and a summary measure of private participation (by aggregating total investment from the World Bank PPI dataset).  (At this stage private participation is treated as exogenous)

 

But private sector engagement is not a random variable, so may be related to some of the second stage variables. So use an instrumental variable approach to create a first-stage regression.

 

FIRST STAGE

Regressing the measure of private participation on a series of variables that influence private participation (at least some of which should not appear in the second stage regression) to give the identification. (Private participation is now endogenous).

 

Then re-do the second stage, replacing the actual (original) private participation measure with the measure predicted from the first stage equation.

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