Regulatory reforms and the efficiency and productivity growth in electricity generation in OECD countries

This paper examines how the energy sector regulatory reforms undertaken in the OECD have had an impact on efficiency and productivity growth in electricity generation during 1980-2013. A stochastic production frontier model that accommodates time-invariant heterogeneity and efficiency effects is applied to the panel data for 25 OECD countries. To ensure that the efficiency scores lie in a unit interval, the efficiency effects are specified by a probit distribution function of three regulatory reforms (vertical integration, entry liberalisation and privatisation) and two control variables. The parametric equivalent of TFP Malmquist index is decomposed into efficiency, scale, and technical changes. Empirical results reveal that vertical disintegration boosts the level of efficiency in the OECD. The fully private-owned and fully public-owned enterprises that co-exist in the OECD region are more efficient than the mixed enterprises. Over the period of study, productivity has grown by 9.69% with an average annual growth rate of 0.27%. This is facilitated by an improvement in efficiency and shift in frontier due to technological innovations.