The Effects of Country Risk and Conflict on Infrastructure PPPs
Through an empirical analysis of the relationship between private participation in infrastructure and country risk, the paper shows that country risk ratings are a reliable predictor of infrastructure investment levels in developing countries. The...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/08/18108361/effects-country-risk-conflict-infrastructure-ppps http://hdl.handle.net/10986/16002 |
| Summary: | Through an empirical analysis of the
relationship between private participation in infrastructure
and country risk, the paper shows that country risk ratings
are a reliable predictor of infrastructure investment levels
in developing countries. The results suggest that a
difference of one standard deviation in a country's
sovereign risk score is associated with a 27 percent
increase in the probability of having a private
participation in infrastructure commitment, and a 41 percent
higher level of investment in dollar terms. The predictive
ability of country risk ratings exists for all sectors of
infrastructure and for both greenfield and concessions. On
average, energy investments exhibit a higher sensitivity to
country risk than transport, telecommunications, and water
investments. Concessions are more sensitive than greenfield
investments to country risk, although country risk is a good
predictor of investment levels for both contractual forms.
Although foreign direct investment is found to be sensitive
to country risk, the causal relationship is not nearly as
sensitive as it is with private participation in
infrastructure. Finally, an analysis of private
participation in infrastructure patterns for those countries
emerging from conflict reveals that conflict-affected
countries typically require six to seven years to attract
significant levels or forms of private investments in
infrastructure from the day that the conflict is officially
resolved. Private investments in sectors where assets are
more difficult to secure--such as water, power distribution,
or roads--are slower to appear or simply never materialize. |
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