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The latter years of the twentieth century saw considerable movement toward loosening economic regulation across a wide range of industries. Initiated in higher-income countries, this trend has spread across much of the globe, albeit at different speeds and in a variety of forms. This paper looks at developments in the changing regulatory environments under which airports and associated facilities are provided in developing countries. No firm line is drawn in defining a developing country, but most nations in Africa fall under the rubric, as do many countries in South America and parts of Asia, along with some of the transition states in Europe.1 The paper covers all forms of economic regulatory change that have occurred,2 including that of ownership, and sets these within the broader context of the growing importance of air transportation infrastructure to developing countries.3 8 Air Transportation Infrastructure in Developing Countries: Privatization and Deregulation kenneth button 193 I would like to thank Henry Vega for providing assistance in the preparation of this paper. 1. The World Bank provides a listing of low- and medium-income countries based on per capita income, but this paper sees developing nations as involving an even larger group of countries, and sadly many of the poorest nations can hardly be said to be developing. This is not an unimportant distinction because the evidence suggests that successful privatization depends heavily on country and market conditions (Kikeri, Nellis, and Shorley 1994). 2.A distinction is drawn, however, between economic regulation and social regulation, with the focus here entirely on the former. Social regulation tends to involve such matters as income distribution, racial equity, environmental protection, labor laws, and consumer protection, and there have been major changes in all these fields in recent years. The concern here, however, is solely on matters of pricing, market access, and ownership. There are inevitable overlaps between economic and social regulation, but these are not considered. 3. There is also evidence from Latin America that improved air transportation infrastructure and management in developing countries generates greater cost savings than the freeing up of international airline markets that has been the focus of much policy in recent years (Micco and Serebrisky 2004). 08-9395-3 CH 08 2/29/08 2:53 PM Page 193 Economic growth is unevenly spread and the econometric evidence indicates that convergence is taking place only very slowly at best.4 While some parts of the world, especially in Asia, have taken clear leaps forward, many other areas languish in a downward spiral of circular-and-cumulative causation .5 In particular Africa, which has a population of over 800 million but an aggregate gross domestic product (GDP) lower than Spain’s, has seen relatively little economic growth in recent decades, and many nations in Africa have seen their GDPs fall. Initiating more dynamic economic growth paths in poorer countries has proved challenging despite the emergence after World War II of multinational development agencies, such as the World Bank, as well as unilateral initiatives by individual developed nations. One of the problems encountered in virtually all lower-income countries has been inadequate infrastructure, including transportation infrastructure. Indeed,much of the development aid,as opposed to military or purely humanitarian aid, has gone to enhance the infrastructure of developing countries by investing in better transportation systems. More recently, development agencies such as the World Bank, as well as scholars, have begun to look not only at the amount and type of infrastructure within a country but also at the way that infrastructure is maintained and the efficiency with which it is being used and managed.6 This trend may be viewed largely as a demonstration effect emanating from more affluent countries where measures such as regulatory reform and privatization in various forms have generally produced significant economic benefits.7 The rationale for the change of emphasis is often somewhat different, however, with developed countries trying to squeeze more efficiency from an existing infrastructure as they encounter social and environmental constraints to further expansion, whereas developing countries are dealing with an absolute shortage of infrastructure. The air transportation sector has been affected by such liberalizing reforms, although most of the changes have involved the operational side of the indus194 Kenneth Button 4. Barro and Sala-i-Martin (1995). 5. While the original circular-and-cumulative causation theory is largely associated with traditional economies of scale, the New Growth Theory of Romer (1990) and others focuses on knowledge creation. In the longer term, the inability...

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