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.
Details
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Author
Andres,Luis Alberto, Araya,Gonzalo Enrique, Schwartz,Jordan Z.
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Document Date
2013/08/01
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Document Type
Policy Research Working Paper
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Report Number
WPS6569
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2013/08/01
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Disclosure Status
Disclosed
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Doc Name
The effects of country risk and conflict on infrastructure PPPs
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Keywords
country risk;private participation in infrastructure;private investment in infrastructure;water and wastewater treatment;foreign direct investment;access to capital market;water supply and sanitation;price elasticity of demand;provision of infrastructure;public-private partnership;country risk rating;fixed effect model;water and sewerage;level of private;cost recovery period;investments in energy;Type of Investment;repatriation of capital;panel data model;private infrastructure investment;gnp per capita;rates of return;post conflict countries;power and water;change in demand;standard normal distribution;payment for goods;investments in infrastructure;growth and development;list of countries;access to bank;higher profit margin;private service provider;determinants of investment;basic service provision;political risk insurance;ministries of finance;qualitative response model;power purchase agreement;kind of investment;investment in water;form of investment;random effects model;investment by sector;Rule of Law;log inflation;sovereign risk;
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Citation
Andres,Luis Alberto;Araya,Gonzalo Enrique;Schwartz,Jordan Z.;
The effects of country risk and conflict on infrastructure PPPs (English). Policy Research working paper ; no. WPS 6569 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/241991468159603304/The-effects-of-country-risk-and-conflict-on-infrastructure-PPPs