Investment in the energy sector involves a significant volume of sunk costs on long-lived assets. Transparent regulatory practices adopted by independent regulatory agencies and subjected to the monitoring of the public are regarded as essential to foster private participation in energy projects. A database was created using information on the constitution and operating procedures of regulatory agencies in 87 developing countries to assess their level of formal independence. The econometric analysis based on this database indicates that the independence of regulatory agencies is relevant to promote private investment in the energy sector. The analysis also shows that income level andmacroeconomic stability are key factors to encourage private participation in infrastructure projects in the energy sector of developing countries.
Investment; Infrastructure; Legal Institutions
