Telecommunications privatization and tariff rebalancing: evidence from Latin America

Using panel data on 23 countries, we find a positive and statistically sign ificant relationship between privatization and network expansion and effici ency in the Latin American region. We also find that excess demand for basi c service is strongly and negatively related to tariff rebalancing, suggest ing that an increase in residential service prices can mitigate unmet deman d for basic service in the Latin American region by, in the long run, incre asing the supply of main lines. According to our results, a 10 percent incr ease from the average residential price in Latin America is likely to reduc e unmet demand by approximately 4.1 percent. Finally, we find that privatiz ation is negatively related to unmet demand. In particular, privatization r educes unmet demand by approximately 28 percent. This indicates that, even after controlling for tariff rebalancing, there are concrete efficiency gai ns from privatization. (C) 2000 Elsevier Science Ltd. All rights reserved.