Abstract
We investigate the political determinants of liberalization in OECD network industries, performing a panel estimation over 30 years, through the largest and most updated sample available. Our results contrast with the traditional wisdom according to which right-wing governments do promote market-oriented policies more intensively than left-wing ones. Our findings reveal a neglected role of the so-called neoliberalism in promoting left-wing market-oriented policy. As a result, we claim that ideological cleavages ceased to act as determinants of the liberalization wave observed in network industries. This result is confirmed when controlling for the existing regulatory conditions that executives find when elected. Furthermore, we find that the country’s exposure to other countries’ policy initiatives acts as a positive stimulus for liberalization policies.
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Notes
See the “Appendix” for a detailed description of the liberalization index that we used.
Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, South Korea, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States. Note, however, that in the estimation analysis, we drop from the sample the Czech Republic’s and Hungary’s observations referring to the years of communist dictatorship and those Slovakia’s observations that refer to the period before it was declared a sovereign state; Switzerland is removed from the final sample because of missing data on the main political characteristics of the government.
The OECD’s (2009) entry barriers indicator measures the legal market conditions, while it is not influenced by informal enforcement (see Conway and Nicoletti (2006)). This allows us to measure precisely the link between entry conditions and government’s actions, since the OECD’s liberalization scores explicitly refer to the individual years in which the policy interventions have been enacted.
Note that such transformation allows us to avoid further loss of degrees of freedom that could reduce the consistency of our estimates.
In both the fixed and random effects models, the latent dimension accounts for country and time effects, so that both time and spatial structures of the data are modeled. It is also worth noting that we consider a dependent variable (LiberalizationIntensity) which is obtained by first-differentiating variable measured in its absolute levels (Liberalization), the one-year-lagged first-differentiated variable then is included in the model as the autoregressive component; this strongly reduces possible temporal dependence problems.
Both the Potrafke’s Ideology index and the Armingeon et al.’s GovParty index provide a coding only for the following 23 countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, and United States. The Armingeon et al.’s GovParty index does not provide a classification of the Italian government for the year 1995.
This refers to Arellano and Bond (1991) analysis showing that, in dynamic panel models, lag values of the dependent variable may be correlated with the unobserved country-specific effects. To overcome this problem, they propose a method-of-moments (GMM) estimator that is derived by first-differencing the panel model equation and by using moment conditions in which lags of the dependent variable and first-differences of the exogenous variables are instruments for the first-differenced equation.
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Acknowledgments
We would like to thank, for helpful comments and criticism, Carlo Cambini, Xavier Fernàndez i Marìn, Philippe Martin, Emanuela Michetti, Fabio Padovano, Pier Luigi Parcu, Niklas Potrafke, V. Visco Comandini, Stefan Voigt, and two anonymous referees. We would also thank participants to the 2010 ISNIE conference, in particular Christian Bjørnskov and Norman Schofield, and to the 2010 EALE conference. Usual disclaimers apply. We kindly acknowledge financial support by REFGOV—Institutional Frames for Markets.
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Appendix: Liberalization index’s description
Appendix: Liberalization index’s description
We measure liberalization policy by subtracting the OECD’s (2009) entry barriers index from its maximum value (let us call this variable Liberalization) and then calculate the intensity of liberalization interventions (LiberalizationIntensity) by looking at the one-year differences of Liberalization. The OECD’s (2009) entry barriers index is calculated by OECD as the simple average of seven sectoral indicators that, in turn, measure the strictness of the legal conditions of entry in the seven non-manufacturing sectors. The OECD’s (2009) sectoral indicators focus on sector-specific aspects of entry regulation, as follows. Passenger air transport: the focus is on open skies agreements with the USA, regional agreements, and restriction on the number of domestic airlines allowed to operate on domestic routes. Telecom: the focus is on the legal conditions of entry into the trunk telephony market, the international market, and the mobile market. Electricity: the focus is on the conditions of third-party access to the electricity transmission grid and on the conditions of the competition in the market for electricity. Gas: the focus is on the conditions of third-party access to the gas transmission grid, on the share of the retail market open to consumer choice, and on the existence of any regulation that restricts the number of competitors allowed to operate in the market. Post: the focus is on the existence of any regulation that restricts the number of competitors allowed to operate in the national market of basic letter services, basic parcel services, and courier activities. Rail: the focus is on the legal conditions of entry into the passenger and the freight transport rail markets. Road: the focus is on the criteria considered in decisions on entry of new operators.
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Belloc, F., Nicita, A. The political determinants of liberalization: do ideological cleavages still matter?. Int Rev Econ 58, 121–145 (2011). https://doi.org/10.1007/s12232-011-0124-y
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DOI: https://doi.org/10.1007/s12232-011-0124-y