THE EFFECT OF WATER AND SANITATION PRIVATIZATION ON

CHILD MORTALITY RATES IN GUAYAQUIL, ECUADOR

A DIFFERENCE-IN DIFFERENCES ANALYSIS

Brian C. Lambert
University of Colorado
Boulder, Colorado
April 3rd, 2019

Advisor:
Dr. Tania Barham
Department of Economics

Honors Council Representative:

Dr. Terra McKinnish
Department of Economics

Third Member:
Dr. Peter Newton
Environmental Studies

Abstract

A strong debate continues in economics over whether privatization of water and

sanitation resources is beneficial in developing countries. This paper analyzes mortality
and census data in the years 1990- 2010 from the Ecuadorian National Institute of
Statistics and Censuses to determine how the privatization of water and sanitation in
Guayaquil, Ecuador has affected water-related mortality rates in the city. In this
analysis, I conduct a difference-in-difference regression analysis with the under-three,
under-five, and under-ten water-related mortality rate as my dependent variable, and
the event of water privatization as my independent variable. In this investigation, I find
that water privatization in Guayaquil had a negligible effect on water-related mortality.

Keywords: water privatization, child mortality, difference-in-differences

Contents

1 Introduction . . . . . . . . 1

2 Literature Review . . . . . . . 5

3 Data . . . . . . . . . 10

3.1 Data

3.2 Control Group Selection

3.3 Empirical Model

3.4 Trend Analysis

3.5 Baseline Balance

4 Methodology . . . . . . . . 17

4.1 Model 1

4.2 Model 2: Fixed Effects

5 Interpretation . . . . . . . . 19

5.1 Main Regression Results

5.2 Falsification Tests

6 Discussion . . . . . . . . 21

7 Conclusion . . . . . . . . 23

8 References . . . . . . . . 24

Supplementary Tables . . . . . . . . 28

Page 1
List of Tables
TABLE 1: WATER AND SANITATION-RELATED CAUSES OF MORTALITY
. . . . . . . . . . . . 10

TABLE 2: BASELINE CHARACTERISTICS OF SELECTED ECUADORIAN

PROVINCES . . . . . . . . . 12

TABLE 3: DOUBLE DIFFERENCE ASSESSMENT OF TRENDS IN THE PRE-

PERIOD . . . . . . . . . . 15

TABLE 4: BASELINE COMPARISON OF TREATMENT AND CONTROL GROUPS

. . . . . . . . . . . . . 17
TABLE 5: MAIN REGRESSIONS: DOUBLE DIFFERENCE EFFECT ON WATER
AND SANITATION-RELATED MORTALITY RATES USING FIXED EFFECTS
. . . . . . . . . . . . . 20
TABLE 6: FALSIFICATION TEST: DOUBLE DIFFERENCE EFFECT ON
ACCIDENTAL MORTALITY RATES USING FIXED EFFECTS
. . . . . . . . . . . . . 21

List of Figures

FIGURE 1-3. . . . . . . . . . . 28

FIGURE 4-5 . . . . . . . . . . . 29

FIGURE 6-7 . . . . . . . . . . . 30

FIGURE 8-9. . . . . . . . . . . 31

Page 2
1 Introduction

Water and sanitation services are natural monopolies with significant externalities, and

the inelasticity of demand for these services justifies intervention from the public sector.

However, potential efficiency gains from privatization prompt many governments to

open these services to market competition. Thus, a strong debate continues in economics

over whether privatization of water and sanitation resources is beneficial to populations

in developing countries. This paper seeks to determine how the privatization of water

and sanitation in Guayaquil, Ecuador has affected child mortality rates in the city. The

question of the effect of water and sanitation privatization on child mortality is relevant

to the larger debate because reductions in child mortality are an excellent baseline

indicator for improved societal welfare, contributing to our understanding of the true

costs and benefits to privatization, informing policymakers and international institutions

about whether privatization of water and sanitation should be prioritized to further

positive development outcomes (Reidpath & Allotey).

The city of Guayaquil suffered from low provision of water and sanitation resources in

the early 1990s and the municipal government began a series of reforms to these services

in 1994, paving the way for eventual privatization. In 2001, a 30-year concession was

made to Interagua, a subsidiary of the International Water Group, for control over the

entire potable water and sewage service network for the municipality. Meanwhile, Quito,

Page 3
a city comparable in terms of population and economic characteristics, has kept

municipal-level control over these services throughout, while also reforming to make the

city’s water and sanitation networks more business friendly. Other comparable

municipalities in the Azuay, Manabi, Pinchincha, and Los Ríos provinces did not have

any significant changes in their municipal water and sanitation services during this

period.

Distribution, price, and quality are the three mechanisms at work in a privatized water

and sanitation system. There are three main hypotheses at work in determining the

impact of these variables on a population. The first hypothesis is that privatization will

cause prices to rise, excluding lower classes. The second is that distribution will grow

unevenly, or even shrink in adjustment to the needs of the upper classes. The third is

that water quality will decrease. These three negative outcomes have been observed in

Guayaquil in a comparative study between Guayaquil and Quito (Carrillo et al., 2007).

In this analysis, I intend to bring this research a step further by directly assessing the

relationship between privatization reforms in Guayaquil with child mortality. It has

been shown that child mortality is a suitable and well-established measure of population

health (Reidpath, D. D., and P. Allotey, 2003). The main goal of this study is to

determine whether privatization has contributed negatively or positively to under-three,

under-five, and under-ten child mortality rates. This will contribute to a holistic view of

Page 4
water and sanitation privatization, contributing to policy frameworks and gaining a

window of understanding into the most prudent ways to craft optimal water and

sanitation policies for a municipality in a developing country.

2 Literature Review

There are three important literatures which are related to my topic. The first concerns

water quality and distribution and their direct effects on child health and mortality. The

second concerns the benefits of privatization on industry within a country, and the

effects each type of privatization has on the economy. The third concerns the available

sources related to both privatization and health, and highlights opportunities for further

research.

First, it is well documented that higher levels of water quality and distribution, and the

availability of sewage systems positively and significantly affect child health. Increased

access to piped water has been shown to reduce the gaps in mortality between high and

low education and income classes in urban Brazil (Merrick, 1985). Households with

piped water had decreased prevalence and duration of diarrhea relative to households

that did not have access to piped water, provided that the mother is well educated

(Jalan & Ravallion, 2003). Both the Merrick (1985) and Jalan & Ravallion (2003) found

that parental education had an important effect on the difference water access made to

Page 5
health. Water access improvements have also been shown to decrease both infant

mortality and the general risk of death by 27% in a study of Egypt’s water systems

(Abou-Ali, 2003). 144 studies conducted to determine the impact on improved water

supply and sanitation on water-related diseases found that the median reduction in

morbidity for diarrhea, trachoma, and ascariasis, was 26%, 27%, and 29%, respectively,

while the median reductions in morbidity for schistosomiasis (snail fever) and

dracunculiasis (Guinea worm disease) were 77% and 78%, respectively. Water supply for

personal and domestic hygiene contributed the most to rate reductions for ascariasis,

diarrhea, schistosomiasis, and trachoma, while sanitation overall had a more dramatic

impact, especially for reducing diarrhea morbidity and mortality, and the severity of

hookworm infection. Better water quality specifically contributed to reduction in

dracunculiasis (Esrey et al., 1991).

Second, privatization in sectors other than water and sanitation has proven profitable

and effective in developing countries. In a study of pre-and post- privatization

performance of 61 companies in 32 industries from 18 countries, real sales increased,

profitability, capital investment spending, operating efficiency, and work forces all

increased (Megginson et al., 1994). A World Bank study of companies in Europe, Asia,

and Latin America finds similar results, in that overall, relaxation of investment

constraints and cost-saving management strategies associated with divestment

contribute to increases in efficiency, profitability, capital investment spending, and

Page 6
output (Galal et al, 1994). Frydman et al. (1999) found that without taking gains to

outsider owners into consideration, it is possible to overstate employment losses from

post-privatization restructuring. A study on financial and operating data of over 6,300

industrial firms in transition economies in Central Europe found that privatization had

a large impact on profitable firm restructuring. On average, a firm will increase

profitability 3-5 times after four years of being privatized, relative to a similar firm

under state ownership. The results are comparable regardless of whether a country

institutes mass privatization or whether the privatization occurs on an individual basis

(Pohl, 1997). Post-communist countries have been especially effective in providing

positive evidence for privatization, as is examined in Earle et al. (1994) and Barberis et

al. (1996). In both papers, shops were analyzed before and after privatization to

determine what factors influence restructuring within firms. In both cases, firm

ownership and management played a large role, indicating an increase in human capital

improvement due to privatization. A study of 97 percent of nonfinancial firms that

privatized in Mexico from 1983-1991, privatization is associated with a 24-percentage

point increase in the mean ratio of operating income to sales, as compared with non-

privatized companies. 64 percent of this increase is attributed to productivity gains (La

Porta & Lopez-de-Silanes, 1999).

Third, despite this empirical evidence of positive economic effects of privatization, it is

uncertain whether the privatization of water and sanitation provides positive societal

Page 7
effects. Coupled with positive investment and profitability outcomes are often increased

prices, layoffs, and lower wages, as is acknowledged by La Porta and Lopez-de-Silanes

(1999). In addition, privatized water and sanitation providers may provide lower quality

service because they do not internalize the health externalities inherent in the industry,

thus causing negative health effects (Shirley, 2000). Higher prices for water and

sanitation could then cause systematic exclusion of the poor, who will turn to inferior

substitutes (Estache et al., 2001). At least in the short run, many privatization

programs have caused negative distributional effects, especially within industries where

benefits have been concentrated, such as in banking and natural resource industries.

Therefore, the positive results observed in sectors such as telecommunications and

electricity may not necessarily translate to the water and sanitation sector (Birdsall &

Nellis, 2003). An empirical analysis of the privatization of Guayaquil, Ecuador, reveals

that distribution did worsen from privatization. The authors compare various indicators

of Guayaquil’s water and sanitation service with those of Quito, discovering that water

coverage has decreased disproportionally for the poor. Water pressure has also

decreased, while the price of water is higher and has grown at a faster rate than in

Quito (Carillo et al., 2007).

Several empirical studies have directly researched the impact on privatization on child

mortality to better understand the holistic effects on societies in developing countries. In

Argentina, privatization caused an overall reduction in the child mortality of 8 percent.

Page 8
The effect was even more pronounced in extremely poor municipalities, who experienced

a decrease in child mortality of 26.5 percent. (Galiani et al., 2003). In contrast,

municipalities in Colombia that decentralized exhibited lower reduction in child

mortality than their public counterparts during the same period. This suggests that

privatization impeded progress, and that provision of water through local governments

is a better alternative to privatization (Granados & Sanchez, 2014). Silva and Andia

(2006) demonstrate that in Colombia, the link between water and sewage coverage and

childhood mortality is weak, indicating spending inefficiencies within the system.

From reviewing the available literature on water and sanitation privatization and

mortality, more empirical research is needed to determine the real societal effects of

water and sanitation divestment in developing countries. It is also evident that results

can depend greatly on firm ownership and the method of privatization for each

municipality and country involved, as well as the level of development of the country in

which such interventions are implemented. This issue has been dealt with on both

microeconomic levels and macroeconomic levels, in total and on the margin, yet it has

produced unsatisfactory results. The fact that multiple analyses have been completed

concerning the situation in Ecuador paves the way for the research linking both

privatization and child mortality in Guayaquil.

3 Data

Page 9
3.1 Data

To perform the analysis I create a panel data set at the province level from 1990 – 2010

drawing from several data sources. Mortality data is extracted from the Statistical

Registry of General Deaths. I use information on the locality of the death, age of death,

and cause of death, to construct numbers of death by age and type of death. I examine

deaths due to water related diseases and accidents. To make the mortality rate I use

birth and population data from the Ecuadorean Birth Registry. Finally, to examine

how similar the treatment and comparison areas are, and to control for these differences,

I use data from the Ecuadorian National Institute of Statistics and Censuses.

I use province-level census data from 1990, 2001, and 2010 to examine baseline

indicators. The Statistical Registry of General Deaths is kept on a yearly basis. The

deaths considered to be water related are those observations whose ICD 9 or ICD 10

codes correspond to the causes of death most closely related to water related death.

These are as follows:

TABLE 1: WATER AND SANITATION-RELATED

CAUSES OF MORTALITY
ICD 9 Code ICD 10 Code Cause of Death
001 A00 cholera
002 A01.00 typhoid
003 A03 shigellosis
004 A04 other bacterial infections
006 A06 amoebiasis
007 A07 other protozoal intestinal disease

Page 10
 008 A08 intestinal infections from other organisms
009 A09 ill-defined intestinal infections
070 B18 hepititis A
127.0 B77 ascariasis
787.91 R19.7 diarrhoea
125.7 B72 dracunculiasis
126.9 B76 hookworm infection
120 B65 schistosomiasis
076 B94.0 trachoma
276.5 E86 dehydration

The outcome variable rate is defined as the amount of water-related deaths divided by

the number of births/1000. Thus, it is a measurement of water and sanitation-related

deaths per every 1000 births for that year and location. I vary this variable by the age

groups Under 3, Under 5, and Under 10.

The independent variable is a dummy variable for privatization which takes on a value

of 1 if the municipality privatized their services. Thus, the provinces are separated by

treatment group, with the province of Guayas as the treatment group from the period

between 2002 and 2010, and all other provinces as the control group during the same

period.

3.2 Control Group Selection

Ecuador is predominantly rural, and thus, the question of privatization of municipal

water supplies would not be as relevant to outlying provinces, because in these areas

water may be supplied by wells or other non-municipal sources. Thus, water-related

Page 11
child mortality outcomes might look different in these provinces and have different root

causes relative to the more urbanized provinces. In Figures 4, 6, and 8, the trends in

water-related child mortality are depicted between the treatment province of Guayas

and the average of all other provinces in Ecuador. When compared with Figures 5, 7,

and 9, which depict the same information with a control group narrowed to the four

most characteristically urban Ecuadorean provinces, the difference between trend lines

narrows. Due to the more closely related trends between this more exclusive control

group and the treatment group, the analysis will be conducted using this narrowed-

down sample of observations. For my main regression, I have narrowed down my data

set to five provinces in Ecuador sufficiently similar to my treatment province, Guayas.

These provinces are Azuay, Los Ríos, Manabí, and Pichincha. I narrowed them down

based on three factors- Population, Urbanization, and Human Development. When the

data options are limited to a single country, the uneven population concentrations

present in the country create discrepancies that must be accounted for by fixed effects.

TABLE 2: BASELINE CHARACTERISTICS OF SELECTED ECUADORIAN

PROVINCES

Page 12
 Province Human
Population Development Index
Province Major City (2010) Urbanization% (2010) (2010)
Azuay Cuencas 712, 127 53.4% 0.784
Guayas Guayaquil 3,645,483 84.5% 0.768
Los Ríos Babahoyo 778,115 53.6% 0.705
Manabi Portoviejo 1,369,780 56.3% 0.733
Pinchincha Quito 2,576,287 68.5% 0.822

3.3 Empirical Model

A double difference method is used to determine the effect of the privatization in

Guayaquil on water and sanitation-related mortality rates. This regression method

compares a difference in means between the treatment and control group before and

after an intervention. The treatment group in is the province of Guayas, in which the

privatization occurred. The control group is comprised of provinces with similar levels of

urbanization and population. The before period extends from 1990 through 2001with

2001 as the intervention year, and the after period is from 2002 to 2010. The first

difference is the difference in means of the outcome variable between Guayas (YTB) and

the control group (YCB) before the intervention to account for any differences in

baseline characteristics. The second difference is the difference in the means between the

treatment (YTA) and control group (YCA) after the intervention. In subtracting both

differences the model measures the effect the intervention had on the treatment group.

DD = (YTA-YCA) – (YTB-YCB)

Page 13
The central assumption of the double difference model is that trends between treatment

and control groups would have continued in the same way had the intervention not

occurred.

3.4 Trend Analysis

While I can’t directly test the central assumption of the double difference model, I can

examine if the trends in mortality are similar between Guayas and other similar

provinces before the privatization program was implemented. If they are similar before

the introduction of privatization, it is more likely they would have been similar after,

had Guayas not received the program. One way of testing this assumption is by

analyzing trends in the before period. In Table 3, I compare the trends in mortality

between Guayas and the chosen control provinces in the pre-period using the following

regression:

𝑅𝑎𝑡𝑒%& = 𝛽) + 𝛽+ 𝑦𝑒𝑎𝑟& + 𝛽/ 𝑡𝑟𝑒𝑎𝑡% ∗ 𝑦𝑒𝑎𝑟& + 𝜖%&

Where 𝑅𝑎𝑡𝑒%& is the child mortality rate in province 𝑖 and year 𝑡, defined as the number

of water-related deaths for every 1000 live births

𝛽) is the constant term.

𝛽+ measures the effect of the control group in the before period, where the variable

𝑡𝑟𝑒𝑎𝑡 takes on a value of 1 if the province has been privatized and 0 if the province

remains public.

𝛽/ is the difference-in-difference estimator.

Page 14
𝜖%& is the error term varies across province and time.

𝑡 is restricted to pre-period years (1990-2001).

The coefficient in the interaction between trend and treatment is not significant for any

of the age groups, and the coefficients are close to zero in all cases. Thus, trends

between the treatment and control groups in the pre-period were comparable, and were

not significantly different from each other. This provides some support that the central

assumption of the difference-in-difference model holds.

TABLE 3: DOUBLE DIFFERENCE ASSESSMENT OF TRENDS IN THE PRE-

PERIOD
(Model 1) (Model 2) (Model 1) (Model 2) (Model 1) (Model 2)
Under-3 Under-3 Under-5 Under-5 Under-10 Under-10
Rate Rate Rate Rate Rate Rate
Treat*Year -0.000 0.014 -0.000 0.021 -0.000 0.019
(0.000) (0.023) (0.000) (0.031) (0.000) (0.043)
Year -0.145*** -0.148*** -0.196*** -0.200*** -0.286*** -0.290***
(0.010) (0.010) (0.014) (0.014) (0.019) (0.019)
Azuay 28.915 42.848 38.211
(45.803) (61.814) (85.849)
Los Rios 29.086 43.235 39.148
(45.803) (61.814) (85.849)
Manabi 28.253 42.025 37.362
(45.803) (61.814) (85.849)
Pinchincha 28.748 42.684 38.162
(45.803) (61.814) (85.849)
Constant 290.725*** 267.725*** 393.916*** 359.758*** 574.564*** 543.987***
(20.165) (40.968) (27.456) (55.288) (38.439) (76.785)

Observations 105 105 105 105 105 105

R-squared 0.671 0.739 0.669 0.742 0.687 0.760
Standard errors in
parentheses
*** p<0.01, **
p<0.05, * p<0.1

Page 15
3.5 Baseline Balance

In conducting my analysis, it is important to be aware of the assumptions inherent of

my research design. While the pre-program trends are similar, it is harder to reduce

mortality the lower it is. So if the means are not equal in the pre-period, it could be that

the trends in the post-period differ, even if the pre-trends are similar, because it is

harder to reduce mortality the lower it is. Table 4 presents the means for the treatment

and control groups and the difference in means between the two groups for Under-3,

Under-5, or Under-10 water-related death rates. None of the mortality rates are

significantly different, though control provinces have a slightly higher pre-period rate of

mortality than the treatment province, indicating that they may be worse off. The fact

that the rates are higher among the control areas may make it harder to find a program

effect.

I also check how similar the means are between the treatment and control cities, for

variables that could be correlated with water death. Between my control group and my

treatment group, the provinces are significantly different in terms of their initial

conditions with respect to urbanization as well as the percentage of households who

have toilets and baths. Thus, in the pre-period, the untreated provinces were 23.1

percentage points less urbanized than the treated province. The percentage of

households with baths in the control provinces was 13.1 percentage points lower than in

the treatment province. The number of households with baths among the control

Page 16
provinces was 11.2 percentage points lower than in the treatment province. This

discrepancy between the provinces in the pre-period means that it will be important to

control for these pre-period differences during my regression analysis.

TABLE 4: BASELINE COMPARISON OF TREATMENT AND CONTROL GROUPS

Treatment Control Difference in Means

Mean SE Mean SE Difference P-value
% Urbanization 0.853 (0.018) 0.622 (0.012) 23.1% 0.000
% of households with toilets 0.857 (0.026) 0.726 (0.013) 13.1% 0.000
% of households with baths 0.539 (0.024) 0.428 (0.011) 11.2% 0.000
Under-3 water-related death
rate
(deaths/1000 live births) 0.943 (0.236) 1.162 (0.118) -21.9% 0.409
Under-5 water-related death
rate
(deaths/1000 live births) 1.25 (0.321) 1.557 (0.160) -30.7% 0.394
Under-10 water-related
death rate
(deaths/1000 live births) 1.855 (0.461) 2.265 (0.231) -41% 0.429

4 Methodology

4.1 Model 1

In this analysis, I conduct the following difference-in-difference regression model to

determine the effect of privatized water and sanitation services on child mortality.

𝑅𝑎𝑡𝑒%& = 𝛽) + 𝛽+ 𝑡𝑟𝑒𝑎𝑡% + 𝛽/ 𝑎𝑓𝑡𝑒𝑟& + 𝛽4 𝑡𝑟𝑒𝑎𝑡% ∗ 𝑎𝑓𝑡𝑒𝑟& + 𝜖%&

Where 𝑅𝑎𝑡𝑒%& is the child mortality rate in province 𝑖 and year 𝑡, defined as the number

of water-related deaths for every 1000 live births

Page 17
𝛽) is the constant term.

𝛽+ measures the effect of the control group in the before period, where the variable

𝑡𝑟𝑒𝑎𝑡 takes on a value of 1 if the province has been privatized and 0 if the province

remains public.

𝛽/ measures the different in means of the control group between the after and the before

period, where the variable 𝑎𝑓𝑡𝑒𝑟 takes on a value of 1 in the period after the

privatization, and 0 in the period before the privatization.

𝛽4 is the difference-in-difference estimator

𝜖%& is the error term varies across province and time.

4.2 Model 2: Fixed Effects

Given the panel nature of my data, I also include year and province fixed effects to

determine better control for trends over time and the differences between each city in

my control group.

𝑅𝑎𝑡𝑒%& = 𝛽) + 𝛽+ 𝑡𝑟𝑒𝑎𝑡% + 𝛽/ 𝑎𝑓𝑡𝑒𝑟& + 𝛽4 𝑡𝑟𝑒𝑎𝑡% ∗ 𝑎𝑓𝑡𝑒𝑟& + 𝑢% + 𝜆& + 𝜖%&

Where 𝑢% is a fixed effect unique to municipality 𝑖

𝜆& is a time fixed effect common to all municipalities in period 𝑡.

Because water and sanitation-related diseases are more often fatal for those in younger

age groups rather than older age groups, the regressions were restricted to age groups of

individuals under-three, under-five, and under-ten. Thus, both regression models were

run in each age group, for a total of six regressions.

Page 18
5 Interpretation

5.1 Main Regression Results

Table 5 present the double difference results for death under under-three, under-five, or

under-10 age groups. both with and without the year and province fixed-effects.

Examining the coefficient on the treatment variable, show that the means between the

treatment and control were similar during the pre-period, and the control is only 0.257

deaths per 1000 births less than the treatment. The coefficient on after shows that on

average the mortality rate for each of the age groups went down over time. In this case,

the mortality rate fell by 1.36 deaths per 1000 births during the period. The coefficient

on the interaction of treat and after is the double difference estimator and small and

statistically insignificant for each of the age groups. Thus, based on this analysis, the

privatization had a negligible effect child mortality due to waterborne diseases in

Guayas province.

TABLE 5: MAIN REGRESSIONS: DOUBLE DIFFERENCE EFFECT ON WATER

AND SANITATION-RELATED MORTALITY RATES USING FIXED EFFECTS
(Model1) (Model 2) (Model 1) (Model 2) (Model 1) (Model 2)
Under-3 Under-3 Under-5 Under-5 Under-10 Under-10
Rate Rate Rate Rate Rate Rate

treat*after 0.090 0.090 0.168 0.168 0.186 0.186

(0.423) (0.221) (0.576) (0.281) (0.821) (0.368)
treat -0.257 -0.379 -0.490
(0.277) (0.377) (0.538)
after -1.360*** -1.841*** -2.682***
(0.189) (0.258) (0.367)
Constant 1.745*** 3.438*** 2.346*** 4.520*** 3.414*** 6.742***

Page 19
 (0.124) (0.232) (0.169) (0.295) (0.241) (0.385)
Fixed effects N Y N Y N Y
Observations 105 105 105 105 105 105
R-squared 0.388 0.869 0.383 0.885 0.395 0.905
Standard
errors in
parentheses
*** p<0.01, **
p<0.05, *
p<0.1

5.2 Falsification Tests

Falsification tests using altered dependent variables were used to compare the causal

results of the main regression with any erroneous causalities that could be formed by

regressing unrelated dependent and independent variables. The same regressions were

run with a causally unrelated dependent variable which measured the accidental death

rate of children for under-three, under-five, and under-10 age groups. The assumption of

the falsification test model is that privatization does not have a causal relationship with

accidental deaths. Accidental deaths were measured in the ICD-9 and ICD-10 codes as a

wide range of external causes in which the individual lost their life from an occurrence

which was accidental in nature, such as accidental falls or accidental fatal interactions

with machinery. The rate which defines the altered dependent variable, therefore, is the

number of accidental deaths for every 1000 live births.

The difference-in- differences estimator was low and statistically insignificant for under-

three, under-five, and under-10 age groups for both the simple regressions and the

Page 20
regressions including fixed effects for province and time. Thus, the falsification test

provides evidence that the assumption that there is no relationship between

privatization and accidental deaths is true- whereas, the primary regressions in contrast,

are used appropriately.

TABLE 6: FALSIFICATION TEST: DOUBLE DIFFERENCE EFFECT ON

ACCIDENTAL MORTALITY RATES USING FIXED EFFECTS

(Model 1) (Model 2) (Model 1) (Model 2) (Model 1) (Model 2)

Under-3 Under-3 Under-5 Under-5 Under-10 Under-10
Rate Rate Rate Rate Rate Rate

Treat*After -0.026 0.099 -0.026 0.099 -0.003 0.192

(0.436) (0.091) (0.436) (0.091) (0.729) (0.148)
Treat -0.904*** -0.904*** -1.476***
(0.286) (0.286) (0.477)
After -0.097 -0.097 -0.237
(0.091) (0.091) (0.152)
Constant 1.405*** 1.154*** 1.405*** 1.154*** 2.505*** 2.075***
(0.061) (0.096) (0.061) (0.096) (0.101) (0.155)
Observations 480 105 480 105 480 105
Fixed effects N Y N Y N Y
R-squared 0.039 0.929 0.039 0.929 0.039 0.925
Standard
errors in
parentheses
*** p<0.01,
** p<0.05, *
p<0.1

6 Discussion

Having found statistically insignificant results on the main regressions, I would propose

the addition of controls for sex, socioeconomic status, and race/ethnicity to add more

Page 21
sophistication to the model and to determine whether effects could differ based on

demographic concerns. This type of inclusion is supported by theory, because it is

possible that both sexes differ in terms of susceptibility to certain waterborne diseases,

and people of lower socioeconomic status might be more prone to search for alternative

water sources when the prices for water on the grid reach certain thresholds that they

can no longer afford. I would also conduct my analysis on the canton or neighborhood

level, rather than the province level, allowing me to determine more precisely the effect

for different parts of the city of Guayaquil. This could even allow me to conduct an

analysis related to specific portions of the water supply network of the city, as well as

the mileage of households from the city center or the number of households near water

and sanitation grid nodes.

One factor contributing to the statistical insignificance is sample size. In dealing with

asymmetry between the amount of observations in the control group versus the amount

of observations in the treatment group, the confidence intervals are large, while the

amount of significance is low. Adding observations by finding similar Latin American

cities outside of Ecuador for the treatment group might improve precision by increasing

the overall sample size. The data was limited within the country itself, so broadening

the scope of the research to include privatized cities across Latin America would

eliminate the problem of sample size.

Page 22
Another factor contributing to the statistical insignificance of the results is that it is

easier to reduce the death rate if the rate is very high to begin with. Thus, if the

intervention had happened earlier, any effects caused by the intervention would have

been more magnified in comparison to later periods in which the death rate had lowered.

However, since the intervention occurred in a period when the death rate was already

low, any effects would therefore be more muted.

7 Conclusion

In conclusion, based on this analysis, the water and sanitation privatization which

occurred in Guayaquil, Ecuador in 2001 did not contribute significantly to changes in

child mortality rates at either the under-three, under-five, or under-ten levels. Trends

clearly show an overall decrease in these rates over the 20-year period studied; however,

these declines may be explained by the general improvements in health occurring in

multiple Ecuadorean regions during this period, irrespective of the privatization event

itself. There is still much more to consider in studying this issue, and more research is

needed to determine the effects of the privatization on various demographic and

socioeconomic levels.

Page 23
Page 24
8 References

Abou-Ali, Hala. “The Effect of Water and Sanitation on Child Mortality in Egypt.”

Report, 2003. https://gupea.ub.gu.se/handle/2077/2828.

Barberis, Nicholas, Maxim Boycko, Andrei Shleifer, and Natalia Tsukanova. “How Does

Privatization Work? Evidence from the Russian Shops.” Journal of Political

Economy 104, no. 4 (1996): 764–90.

Carrillo, Paul, Bellettini Cedeño, Orazio J, and Elizabeth Coombs. “Stay Public or Go

Private?: A Comparative Analysis of Water Services between Quito and

Guayaquil.” Working Papers. Inter-American Development Bank, August 2007.

http://publications.iadb.org/handle/11319/3346.

Earle, John S. “Post-Privatisation Ownership Structure and Productivity in Russian

Industrial Enterprises.” Working Paper. Nota di Lavoro, Fondazione Eni Enrico

Mattei, 1999. https://www.econstor.eu/handle/10419/154973.

Esrey, S. A., J. B. Potash, L. Roberts, and C. Shiff. “Effects of Improved Water Supply

and Sanitation on Ascariasis, Diarrhoea, Dracunculiasis, Hookworm Infection,

Schistosomiasis, and Trachoma.” Bulletin of the World Health Organization 69, no.

5 (1991): 609–21.

Frydman, R., C. Gray, M. Hessel, and A. Rapaczynski. “When Does Privatization

Work? The Impact of Private Ownership on Corporate Performance in the

Page 25
 Transition Economies.” The Quarterly Journal of Economics 114, no. 4 (November

1, 1999): 1153–91. https://doi.org/10.1162/003355399556241.

Galal, Ahmed*Jones. “Welfare Consequences of Selling Public Enterprises : An

Empirical Analysis - a Summary.” The World Bank, August 31, 1994.

http://documents.worldbank.org/curated/en/517121468052737074/Welfare-

consequences-of-selling-public-enterprises-an-empirical-analysis-a-summary.

Galdo, Virgilio, and Bertha Briceño. “Evaluating the Impact on Child Mortality of a

Water Supply and Sewerage Expansion in Quito: Is Water Enough?” Working

Papers. Inter-American Development Bank, May 15, 2005.

http://publications.iadb.org/handle/11319/2833.

Galiani, Sebastian, Paul Gertler, and Ernesto Schargrodsky. “Water for Life: The

Impact of the Privatization of Water Services on Child Mortality.” Journal of

Political Economy 113, no. 1 (February 1, 2005): 83–120.

https://doi.org/10.1086/426041.

Granados, Claudia, and Fabio Sánchez. “Water Reforms, Decentralization and Child

Mortality in Colombia, 1990–2005.” World Development, Decentralization and

Governance, 53, no. Supplement C (January 1, 2014): 68–79.

https://doi.org/10.1016/j.worlddev.2013.01.007.

Jalan, Jyotsna, and Martin Ravallion. “Does Piped Water Reduce Diarrhea for Children

in Rural India?” Journal of Econometrics 112, no. 1 (January 2003): 153–73.

https://doi.org/10.1016/S0304-4076(02)00158-6.

Page 26
La Porta, R., and F. Lopez-de-Silanes. “The Benefits of Privatization: Evidence from

Mexico.” The Quarterly Journal of Economics 114, no. 4 (November 1, 1999):

1193–1242. https://doi.org/10.1162/003355399556250.

McKenzie, David, Dilip Mookherjee, Gonzalo Castañeda, and Jaime Saavedra. “The

Distributive Impact of Privatization in Latin America: Evidence from Four

Countries [with Comments].” Economía 3, no. 2 (2003): 161–233.

Megginson, William L., Robert C. Nash, and Matthias Van Randenborgh. “The

Financial and Operating Performance of Newly Privatized Firms: An International

Empirical Analysis.” The Journal of Finance 49, no. 2 (1994): 403–52.

https://doi.org/10.2307/2329158.

Merrick, Thomas W. “The Effect of Piped Water on Early Childhood Mortality in

Urban Brazil, 1970 to 1976.” Demography 22, no. 1 (February 1, 1985): 1–24.

https://doi.org/10.2307/2060983.

Prasad, Naren. “Privatisation Results: Private Sector Participation in Water Services

After 15 Years.” Development Policy Review 24, no. 6 (November 2006): 669–92.

https://doi.org/10.1111/j.1467-7679.2006.00353.x.

Reidpath, D. D., and P. Allotey. “Infant Mortality Rate as an Indicator of Population

Health.” Journal of Epidemiology & Community Health 57, no. 5 (May 1, 2003):

344–46. https://doi.org/10.1136/jech.57.5.344.

“Shirley, Mary. ‘Reforming Urban Water Systems: A Tale of Four Cities.’ Regulatory

Policy in Latin America: Post Privatiz,” n.d.

Page 27
“UNICEF. ‘La Infancia, El Agua y El Saneamiento Básico En Los Planes de Desarrollo

Departamentales y Municipales.’ Colabo,” n.d.

Page 28
FIGURE 1

FIGURE 2

FIGURE 3

Figures 2 and 3 reflect mortality trends for selected provinces.

Page 29
 FIGURE 4

FIGURE 5

Figures 4 and 5 demonstrate the comparative mortality trends when the (4) the
control group is comprised of all provinces in Ecuador vs. (5) when the control group
is restricted.

Page 30
FIGURE 6

FIGURE 7

Figures 6 and 7 demonstrate the comparative mortality trends when the (6) the
control group is comprised of all provinces in Ecuador vs. (7) when the control group
is restricted.

Page 31
 Privatization year=2001

FIGURE 8

FIGURE 9

Figures 8 and 9 demonstrate the comparative mortality trends when the (8) the
control group is comprised of all provinces in Ecuador vs. (9) when the control group
is restricted.

Page 32