Powering Up Developing Countries through Integration?

Emmanuelle Auriol and Sara Biancini

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Abstract: Power market integration is analyzed in a two-country model with nationally regulated firms and costly public funds. If the generation costs between the two countries are too similar, negative business stealing outweighs efficiency gains so that, subsequent to integration, welfare decreases in both regions. Integration is welfare enhancing when the cost difference between two regions is large enough. The benefits from export profits increase the total welfare in the exporting country, whereas the importing country benefits from a lower price. In this case, market integration also improves incentives to invest compared to autarky. The investment levels remain inefficient, however, especially for transportation facilities. Free riding reduces incentives to invest in these public-good components of the network, whereas business stealing tends to decrease the capacity to finance new investment.

Keywords: investment; regulation; electricity; competition; market integration (search for similar items in EconPapers)
Date: 2013-07-21
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00952178v1
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Citations: View citations in EconPapers (4)

Published in World Bank Economic Review, 2013, 29 (1), ⟨10.1093/wber/lht021⟩

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Related works:
Journal Article: Powering Up Developing Countries through Integration? (2015)
Working Paper: Powering up developing countries through integration ? (2013)
Working Paper: Powering Up Developing Countries through Integration? (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00952178

DOI: 10.1093/wber/lht021

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