To investigate the influence that a country’s level of economic and financial sector development level on private investment in the power sector in developing countries, we collected data on the 37 developing countries in Latin America and Caribbean, Asia, Middle East and North Africa, and SubSaharan Africa shown in Table 1 below.<sup>13</sup> We note that 31 of these countries are middle income countries (MIC), meaning that they have relatively high growth rates and active financial sectors, enough to allow us to capture any potential effect of economic growth and financial sector development on private investment. In additional, autonomous energy sector regulatory authorities have been created in most of these countries during the period covered by our sample.

Table 2 below exhibits the list of variables on which data have been collected. More detailed information on these variables is given in Table A1 of the appendix. Here, we synthesize the main features of the variables. The dependent variable "Private capital in energy sector," is labeled _privinvt_ . This variable represents the total amount, in millions of 2005 USD, of private investments in power projects undertaken in a given country during a given year.<sup>14</sup> The independent variables that will draw much of our attention are regrouped under the labels "Economic development" and "Financial sector development." Overall economic development is represented by the variable _growth_ , the growth rate of GDP per capita while the variable _findev_ is used to represent the level of development of a country’s financial sector. We also distinguish banking and capital market operations by using variables labelled _bsdev_ and _cmdev_ that reflect the development level of these respective (sub-) sectors.

The levels of financial sector development _findev_ , _bsdev_ , and _cmdev_ are variables that are calculated as the first principal components of variables that represent the development level of the banking and the capital market sectors. For the banking sector we use the variables _CBA_ , _DMBA_ , and _CBPC_ . Expressed as fractions of GDP, these variables represent, respectively, total assets held by the Central Bank, total assets held by domestic financial institutions, and total loans granted by commercial banks to domestic corporate and households.<sup>15</sup> As to the capital market, we use the variables _SMC_ , _TVT_ , and _SMT_ . The variables _SMC_ and _TVT_ are also expressed as ratios to GDP and represent, respectively, stock market capitalization and value of shares traded on the stock market. These variables are meant to measure the size of the capital market and its liquidity respectively. The variable _SMT_ is a market turnover variable that is meant to assess the stock market’s efficiency. For a

> 13 A country is considered as lower middle income when its 2008 GNI per capita is between USD 976 and USD 3,855, a higher middle income country when its 2008 GNI per capita is between USD 3,856 and USD 11,905, and as a low income country when its GNI per capita is equal to USD 975 or less.

> 14 No distinction between local and foreign private investment is made in this paper.

8