Auriol, Emmanuelle and Biancini, Sara (2015) Powering Up Developing Countries through Economic Integration. World Bank Economic Review, vol. 29 (n° 1). pp. 1-40.

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Identification Number : 10.1093/wber/lht021


Power market integration is analyzed in a two-country model with nationally regulated firms and costly public funds. If the generation costs between the two countries are too similar, negative business stealing outweighs efficiency gains so that, subsequent to integration, welfare decreases in both regions. Integration is welfare enhancing when the cost difference between two regions is large enough. The benefits from export profits increase the total welfare in the exporting country, whereas the importing country benefits from a lower price. In this case, market integration also improves incentives to invest compared to autarky. The investment levels remain inefficient, however, especially for transportation facilities. Free riding reduces incentives to invest in these public-good components of the network, whereas business stealing tends to decrease the capacity to finance new investment.

Item Type: Article
Language: English
Date: 2015
Refereed: Yes
JEL Classification: F12 - Models of Trade with Imperfect Competition and Scale Economies
F15 - Economic Integration
L43 - Legal Monopolies and Regulation or Deregulation
L51 - Economics of Regulation
R53 - Public Facility Location Analysis; Public Investment and Capital Stock
B- ECONOMIE ET FINANCE > B2- Production. Travail
B- ECONOMIE ET FINANCE > B4- Commerce et Affaire
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:35
Last Modified: 17 Feb 2022 13:35
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