**_Electricity Sector Reform in Developing Countries, Jamasb, Mota, Newbery, Pollitt_**

Schneider and Jäger (2003) identify three types of theory for the withdrawal of the state from infrastructure industries. They classify them into three main categories: (i) dynamic theories of diffusion and contagion - emphasising the inter-relationships and co-evolution of economies, (ii) structuralist and functionalist theories - stressing the inevitability of the withdrawal of the state as a consequence of structural changes in the economy and technological evolution, and (iii) actor-centred and institutionalist theories of political scope of action - opposing the notion of inevitable convergence across the countries and emphasising the feasibility of multiple and country-specific paths and models.

Although the emergence of the liberalisation paradigm for infrastructure industries may be explained in terms of pull and push factors, its macroeconomic effects are yet to be established. As Chang (2003) points out, historically in all developed economies the state and interventionist policies played an active role. Chang also states that there is no theoretical reason that a more liberalised economy will achieve higher allocative efficiency, or that higher allocative efficiency will necessarily lead to higher economic growth.

As discussed, the predictive power of theory is limited with regard to the outcome of the reform of natural monopolies (such as the network businesses of the electricity sector), as this is dependent on how the sector is structured and regulated. Therefore, in order to enhance our understanding of the reforms, it is useful to examine and compare existing experience and evidence on the performance and determinants of reform (see e.g. Jamasb, 2002; Pollitt, 1997). In particular there is much work to be done on the detail of best reform policy. Empirical studies, especially those of the type reviewed in Megginson and Netter’s survey, tend to focus on simple comparisons of pre- and postreform situations using narrow measures of financial and operating performance. As both reform and performance are multi-dimensional, it is important to examine the details of how each reform impacted on variables of socio-economic. The ability to do this is restricted by over-identification and a shortage of degrees of freedom. This makes econometric analysis challenging.

# **2.1 Framework for the study of electricity sector reforms**

Electricity sector reforms are multi-dimensional activities with interacting factors and a variety of impacts. The process generally involves a set of concrete steps or measures based on a specific model of reform. At one level, these measures involve structural and organisational changes to the industry, and at another level there is a requirement for appropriate institutional arrangements such as legislation and new agencies.

In addition, sector endowments and characteristics such as size, resource mix, historical development, define the initial market structure and starting point and can influence the reform path and outcome. Market structure is then influenced by various measures, such as unbundling of vertically integrated enterprises, as well as institutional factors such as regulatory authorities and legislation.

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