The Impact of Privatization and Competition in the Telecommunications Sector Around the World

Abstract

Using a comprehensive country-level panel data set covering the period from 1981 to 1998, we examine the impact of privatization and competition in the telecommunications sector around the world. Privatization contributed substantially to labor shedding, output growth, network expansion, and improvements in labor productivity as well as total factor productivity. But how countries privatized is important. On the one hand, share-issue privatization facilitated the development of the mobile market segment. Granting a newly privatized operator a period of exclusive market access, on the other hand, reduced the gains from privatization (owing to the output-restricting tendency associated with market power) but did not entirely negate them. The presence of competitive pressure in the market was associated with more employment, higher output, faster network expansion, and higher labor and total factor productivity. We find evidence of complementarity between privatization and competition in that competition increased the gains from privatization and vice versa. Our estimates show that half of the output growth between 1990 and 1998 was attributable to privatization and competition, after controlling for input growth. Competition appeared to have a larger impact on labor and total factor productivity than did privatization.

Keywords: Privatization, Competition, Telecommunications, Reforms, Cross-country