Cross-National Variations in Industry Regulation: A Factor Analytic Approach with an Application to Telecommunications

Abstract

This study applies factor analytic techniques to 131 telecommunications regulatory agencies in 80 countries to develop a comparative framework for better understanding the cross-national institutional variation in industrial regulation. While some of these measures are specific to the telecom industry (i.e., WTO Basic Telecom Agreement participation), most of these regulatory variables can be applied to other regulated industries. After analyzing thirty variables, these techniques identify and quantify six distinct dimensions of industry regulation, namely, the competitive market structure rules, industry standards rules, entry barrier rules, institutional stability, political appointment process and the regulatory governance structure. Despite the conventional wisdom that suggests the rules of the game are key to industry regulation, this study finds that the single largest source of cross-national variation is the level of regulatory institutional stability (accounting for 16% of the total variation in cross-national industry regulation). This suggests that more focus and attention should be given to the role formal institutions play in industry regulation. This study also finds differences in industry regulation between developed, developing, and least-developed nations. Developed countries on average have significantly higher regulation with the U.S being the highest. This suggests that regulation is a critical component of industrial regimes and the competitiveness of developed economies.

Keywords: Industry regulation, cross-national comparative analysis, regulatory institutions, telecommunications, principal component analysis

JEL Classification: C81