One limitation of the present approach is that our measures of policy do not capture the multiple dimensions of a complex reform process. For example, while the existence of a separate regulatory agency is likely to be a useful indicator of a government's overall willingness to commit to pro-competitive regulatory principles, a regulator can be ineffective if key regulatory responsibilities (e.g., interconnection) fall outside its mandate. Similarly, the mere existence of additional licenses in a particular service segment is an imperfect indicator of effective competition-let alone the contestability of markets. Moreover, the overall credibility of a government's reform agenda is not adequately captured by our policy proxies, but is likely to exert an important influence on investment decisions-particularly FDI.

These reservations notwithstanding, an econometric investigation has obvious attractions-especially in comparison to the case study evidence on the impact of policy reforms that currently exists.<sup>8</sup> We are able to control for a country's level of development. For example, competition in a low income country like India may not lead to the same level of main line penetration present as in a middle income country like Malaysia. In our panel regression, country fixedeffects can capture economy-specific idiosyncrasies that typically complicate cross-country comparisons. In addition, econometric estimates allow an assessment of the relative importance of alternative policy reforms and, in some cases, their interaction with one another.

Table 1 presents the results of our first investigation on the availability of fixed-line services. The dependent variable is the number of mainlines per 100 inhabitants (in natural logs) We expect "better" policy to be associated with greater mainline penetration, especially where public monopolies are unable to meet demand for services. As control variables, we use a time trend to capture reductions in switching and network costs due to technological progress, GDP per capita and population density. To allow for a more flexible impact of these control variables, we include a quadratic term for each of these regressors.<sup>9</sup> In the first model specification, our policy proxies are a dummy variable that equals one if the incumbent operator has been corporatized and zero otherwise, the private equity share in the incumbent operator, a dumnmy variable for the existence of a separate regulatory agency, and a dummy variable that equals 1 if there is competition for local services and zero if local services are provided by a monopoly. To capture the interdependence between policies, we also include 10 three two-way interaction terms for the privatization, regulation and competition proxies 8 V'ery few econometric studies have been conducted on the effect of telecommunications reform on sector performance. Wallsten (1999) explores the effects of privatization, competition and regulation in 30 African and Latin American countries. However, his study suffers from an imperfect measure of fixed-line competition (he uses the number of mobile operators not owned by the incumbent). Boyauld and Nicoletti (2000) provide econometric evidence of the impact of telecommunications reform on productivity, prices, and quality of long distance and mobile services for the OECD countries. Their findings generally attribute a positive effect of policy reforms to sector performance. It is not clear, however, to what degree these results apply to developing countries where reforms are introduced in the context of feeble network conditions.

9 Mainline penetration as well as all other performance variables used in this study were taken from the ITU's World Telecommunication Indicators Database. Data for GDP per capita and population density are from the World Bank's World Development Indicators.

'° We also estimated a model where the number of years a certain variable was liberalized was used as a proxy for liberalization of that variable. For example, if privatization of the incumbent occurred in 1991, then, the proxy 11