Infrastructure Investment in Network Industries: The Role of Incentive Regulation and Regulatory Independence



ANNEX: Data description

The dependent and explanatory variables are averages for 2001-2006, except the two variables
capturing the regulatory regime (inc and dereg). In addition, the explanatory variables are
included with a lag of one period (using averages for 1995 to 2000). For the averages, the data
series for barriers to entry and public ownership stop in 2003. The other data series end in 2005 or
2006.

Dependent variable

Sectoral investment: investment series in current prices over gross value added in current prices.
The use of current prices avoids problems arising from changes in quality and in composition.
Data for three sectors are collected: 1.) electricity, gas & water, 2.) transport (including water,
road, rail and air transport and storage), 3.) telecommunications. The primary source of the data is
the OECD’s STAN database (in places complemented by the EU-KLEMS database)

Regulatory indicators

Barriers to entry and public ownership: the source of the data is the OECD’s ETCR database. For
the energy sector, a weighted average using sectoral gross value-added is calculated using data for
electricity, gas and water. For the transport sector, an arithmetic average is computed using data
for rail, road and air transportation. The series take the values from 1 to 6. Higher values indicate
higher barriers to entry and higher public ownership.

Regulatory independence source: responses to questionnaires sent out to OECD governments.
The variable takes the value of 1 if the regulator is independent and takes zero if there is no
regulator, or the regulator is a government agency. Data for subsectors are averaged to get the
sectoral figures as for barriers to entry and public ownership. The values are not exclusively 0 and
1 because of the averaging.

Incentive regulation source: responses to questionnaires sent out to OECD governments. The
variable ranges from 0 to 6. For the energy sector, it is calculated as a weighted average using
sectoral gross value-added for electricity, gas and water. For each subsector, the variable can take
the value of 0 (no incentive regulation) or 1 (presence of incentive regulation). The averages are
multiplied by 6 to achieve the scale of 0 to 6. For the transport sector, an arithmetic average is
computed using data for rail, road and air transportation in a similar manner. The variable is
obtained the same way for the telecommunication sector using information for the four
subsectors: fixed line network, fixed line services, mobile phone, and internet.

Absence of price regulation source: responses to questionnaires sent out to OECD governments.
The variable ranges from 0 to 6. The construction of this variable corresponds to that of incentive
regulation. The subsector-level dummy variable takes the value of 1 if there has never been price
regulation or if prices has been fully deregulated, and 0 otherwise.

Controls

Real interest rate source: AMECO of the European Commission and STAN. Long-term nominal
interest rates (i) deflated by past annual changes in the sectoral deflator (ddef) drawn from the
Stan database. The annual inflation rate is obtained as ((1+i)/(1+ddef)-1)*100.

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