Does the privatization of basic sanitation services impact child mortality?

Responsible researcher: Eduarda Miller de Figueiredo

Article title: DOES PRIVATIZATION BENEFITS THE POOR? THE EFFECTS OF DESTATIZATION OF BASIC SANITATION ON CHILD MORTALITY

Article author: Thomas Fujiwara

Location of intervention: São Paulo and Rio de Janeiro, Brazil

Sample size: 436 Municipalities

Sector: Healthcare

Type of intervention: Effect of Privatization of Basic Sanitation

Variable of main interest: Municipality Mortality Rate

Assessment method: Differences-in-Differences

Policy Problem

Basic sanitation is a service that is linked to the basic hygiene need of every human being, with infant mortality being one of the “spheres” that this service affects. Additionally, studying infant mortality is important in three ways:

i) infant mortality is seen as one of the eight “millennium goals” to be followed by all UN countries;

ii) conditions of access to basic sanitation are linked to child mortality, as diseases transmitted by water are among the biggest causes of child mortality;

iii) the existence of econometric evidence of significant impacts of sanitation privatization in reducing child mortality (Galiani, Gali and Schargrodsky, 2005).

However, it is difficult to establish the effects of sanitation privatization. Since, with greater efficiency in the private sector, there will be greater access to treated water and sewage and better quality of service. However, according to the author, the negative impact on access and quality cannot be ignored, as private companies may not internalize the positive externalities of water on health and may focus their operations on richer, more profitable areas.

Implementation and Evaluation Context

In Brazil, practically all basic sanitation has been the responsibility of the public sector since the National Sanitation Plan (Planasa) in 1971. In 2005, the year of the study, 90% of Brazilian urban households had access to water, however, less than half of the urban population had access to the general August network, which had only 27% of its waste treated (Motta and Moreira, 2004).

Planasa enabled a large increase in access to treated water, but already in the 90s evidence appeared that the State's budget restrictions would not allow basic sanitation to continue developing without interference from the private sector. In 1998, only 2% of the Brazilian population had privatized basic sanitation services and, in 2004, only 63 of the more than five thousand municipalities had a concession or permission for the private sector to operate (Parlatore, 2000; Turolla, 2004).

Furthermore, children have weaker immune systems compared to adults and do not have a high knowledge of how to avoid the risk of contamination by diseases that are transmissible through contaminated water, thus suffering more from poor sanitation. In view of this, it is known that diarrhea is responsible for 15% of child deaths in the world and, the average child mortality, in the years 1991 and 2000, was 6.2 and 4.2 deaths per thousand inhabitants of children aged 0 to 4 years, respectively.

Policy Details

Privatization still lacks studies that assess its impact on society, especially on the part of the population that is less favored. Basic sanitation allows testing the impacts of privatization on the well-being of these individuals since its services are directly linked to basic hygiene and health needs and its structure varies over time, from public to private, allowing the creation of treatment and control groups.

Rio de Janeiro and São Paulo were the states that had more than one municipality with privatized basic sanitation services in the year 2000. By using data from these same municipalities in 1991, it was possible to have data for the pre- and post-intervention periods, enabling the application of the econometric model that provides the opportunity for the estimation proposed by the study. Thus, the treatment group are those municipalities that had their basic sanitation service subsidized by the private sector. While the control group had the same service provided by the municipal administration, public companies or mixed-capital companies.

Methodology Details

The objective of this article was to measure the average effect of the privatization of water and/or sewage services in a municipality on its mortality rate for children under five years of age. With the existence of a similar study carried out in Argentina by Galiani, Gali and Schargrodsky (2005), this article uses the same estimation technique, the difference-in-differences model with fixed effects, allowing a comparison between the results. Therefore, following the model of the Argentine study, data from 1991 and 2000 were used, pre- and post-intervention periods, respectively, allowing the comparison of results with the neighboring country.

Data on location and type (water or sewage) are obtained from the Brazilian Association of Private Concessionaires of Public Basic Sanitation Services - ABCON. In 2000, there were 28 municipalities with some type of private concession in this service, however, three of these municipalities were only created after 1991 and three did not present observations of some covariates, therefore, 22 municipalities that had privatization in basic sanitation were used. The author also used mortality data from the Mortality Information System (SIM) to collect the infant mortality rate, as this database allows disaggregation by cause of death.

To estimate the results, panel data with fixed effects was used, where the variable of interest is the municipality's mortality rate. As there is self-selection for intervention, that is, the municipal government chooses to privatize, a series of covariates of the municipality's economic and educational situation were added to the model. Municipal spending on health, per capita sanitation and the percentage of the population with access to garbage collection were also used as indicators of the importance that the local government gives to public health.

Main Results

The estimates showed that the privatization of sanitation services had an average effect of reducing infant mortality by 10.3% and 12.4% in 1991. Comparing with the study carried out in the neighboring country, it can be seen that it was a greater effect, whereas in Argentina it is a reduction of 4.5% and 9.7% in infant mortality.

However, the results obtained could be subject to some type of bias given the lack of municipalities comparable to those that privatized sanitation services in the control group and the different distributions of the covariate vector. To eliminate possible bias, the author used Propensity Score to estimate the probability of a municipality privatizing basic sanitation in the next decade. This new sample was called common support, which contains a panel of 369 municipalities. The results of this model also indicate that there is an average effect of a 12% reduction in infant mortality.

Furthermore, the author proposed testing the impacts of privatization for different causes of child deaths. Estimates showed that privatization had an impact of a 22% reduction in child mortality from infectious and parasitic diseases, but that there was no impact on child mortality from other causes. Therefore, contact with treated water reduced deaths from diseases that are transmissible through contaminated water.

However, the results also indicate that privatization did not cause an increase or decrease in the proportion of households that have access to the general sewage network, but it had a negative and significant effect on the proportion of households with access to the general piped water network.

Public Policy Lessons

The study demonstrates that the privatization of basic sanitation affects infant mortality of children under five years of age, as increased access to treated water and sewage reduces contact with diseases transmitted through water. Furthermore, when compared with the results found in Argentina, Brazil is warned that good regulation is necessary for privatization to produce benefits for society.

Reference
FUJIWARA, Thomas et al. Does privatization benefit the poor? The effects of privatization of basic sanitation on child mortality. Proceedings of the XXXIII National Economic Meeting, 2005.