Privatization of Water: Evaluating Its Performance in the Developing World

Abstract

Private‐sector provision of water has been promoted in developing countries since 1990 in order to expand water service coverage to low‐income households. Decades later, the consequences of privatizing water utilities are still disputed. Some scholars have found that areas with privatized water services see positive development effects, while others contend that the private‐sector supply of a social good will always lead to its under‐provision. However, does more privatization of water provision in developing countries actually bring about more access to water? This paper hypothesizes that more private participation in water provision will not ensure more access to water at the national level. The relationship is tested using data on weighted percentages of private ownership of water utilities, and access to improved water sources from 1990 to 2015 across 62 countries. Multivariate OLS results indicate a positive relationship but with no statistical significance. 2SLS results, on the other hand, indicate a positive, small and statistically significant effect of water privatization on water access. Nonetheless, the causal mechanism behind these results must be further explored, given that the measured effect could be capturing the result of an increase in investment that is associated with private ownership of water utilities.

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