Introduction

Systemic transition in Central and Eastern Europe has raised many new challenges for economic policy, including problems of encouraging adjustments on the supply sides of rapidly evolving markets. The supply-side effects of public policy are of particular significance in respect of the development of infrastructure investment. In part this is because industries such as telecommunications and energy are, for a variety of reasons, liable to be particularly prone to government regulation. In part it is because of the size and significance of the sectors in modern market economies. Both industries are capital intensive, and the expansion and modernization of infrastructures can have strong effects on, and can be strongly affected by, capital market conditions. Since both information and energy are important inputs into many other industries, the innovativeness and international competitiveness of large parts of the economy can be influenced by the performance of the telecoms and energy sectors, which in turn tends to be heavily affected by the government’s regulatory stance. Investment in infrastructure, whether to expand systems or to upgrade their quality, has the effect of raising the marginal productivity of private capital in other sectors. Consequently, regulatory reforms and changes in industrial structures in telecoms and energy can have wide ranging effects on aggregate investment in an economy, and hence on its rate of growth. Issues of privatization, deregulation, and regulatory reform are, therefore, of strategic importance for countries engaged in systemic transition.