Investment in Developing ordered sharp reductions in Countries international settlement rates (bilaterally negotiated rates for telecom traffic between pairs The Effects of International of countries) for telecom Settlement Rate Reductions traffic between the United States and the rest of the world. Even the very poorest Scott J. Wallsten countries, with the least developed telecommunications networks, must slash rates for traffic to the United States by 2003. Will this, by reducing telecom

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... nues in developing countries, reduce investments in those countries telecom sectors? Developing countries, which received about $35 billion In other words, reduced settlement rates spur telecom in net settlement payments from U.S. telecom carriers traffic from developing countries to the United States. between 1985 and 1998, were upset by the FCC's And while there is a statistically significant correlation decision to slash rates, because lower rates mean lower between settlement payments and telecom revenues in payments. They claim that the payments help finance developing countries, he finds no correlation between telecom investment, and that the FCC's decision will the payments and the nunmber of telephone mainlines or therefore harm their telecom sectors. imports of telecommunications equipment. In short, Walisten uses a panel data set for 178 countries from there is no evidence that the payments are invested in 1985 to 1998 to test how changes in settlement rates telecom networks. affect telecom traffic and investment. He finds that rates are significantly negatively correlated with traffic, with the greatest effects in the poorest countries.