Balancing private and state ownership in emerging markets' telecommunications infrastructure: country, industry, and firm influences

Bargaining between host states and investors over the terms of investment in sensitive sectors of the economy generates political and economic tensions. In this study, we investigate the factors that contribute to the outcomes of those negotiations as measured by the private (vs state-owned) share of newly consummated telecommunications infrastructure projects. We find that private ownership is positively associated with overall economic development and investment liberalization in the host country and with greenfield ( vs divestiture) and joint venture ( vs wholly owned) projects. Private ownership is negatively associated with existing telecommunications infrastructure, higher levels of state ownership of foreign investing firms, and the technological sophistication of the projects. Our analysis also shows a curvilinear ( inverted U-shaped) relationship between investment policy hazards and private ownership. This finding supports the insight from transaction cost economics that potential gains from internalization are greatest at intermediate levels of uncertainty.