Does Regulatory Independence Translate into a Higher Degree of Liberalization? - Evidence from EU Energy Regulators

Independent regulatory authorities are a basic prerequisite for a successful liberalization process. However, contrary to what is expected, both graphical analyses and OLS regressions for a small sample of electricity and gas regulators operating in 16 European countries reveal a negative relationship between the authorities' formal autonomy from politicians and the scope of market reforms. These findings might suffer from endogeneity, though, so we draw on political scientists' explanations for diverging independence levels to construct appropriate instruments. The 2SLS-IV results then confirm conventional wisdom: the higher the degree of regulatory autonomy, the higher the level of liberalization.