An abundance of theoretical and empirical evidence recognizes the vital role of infrastructure to stimulate and sustain economic growth. Developing Asia's robust growth has certainly benefited from the strides made in building and upgrading infrastructure. But the region is nowhere close to straddling its huge infrastructure gap, which public resources alone cannot meet. The Asian Development Bank (ADB 2017) estimates that the region's infrastructure investment gap-measured as the difference between investment needs and current investment-is equivalent to 2.4% of projected annual gross domestic product (GDP) from 2016 to 2020. The private sector, owning vast financial resources, could help close the gap through public-private partnerships (PPPs). Just one example of the private capital that could-if the conditions were right-make a major contribution to infrastructure investment is the estimated $100 trillion in global assets managed by pension funds, sovereign wealth funds, insurance companies, and other institutional investors (Arezki et al. 2016). But infrastructure projects need to be bankable to attract these investments.
The very effectiveness of PPPs for infrastructure development is based on structural and functional features that traditional procurement lacks. These include a life-cycle perspective on infrastructure, innovative financing, a focus on service delivery, and risk-sharing by public and private sector partners. The big question is whether and to what extent these features benefit the overall economy. This chapter looks at the policy implications of this for developing countries in Asia that badly need more infrastructure, but have limited resources and capacity to handle the complex processes of PPP projects.
Guided by the literature on PPPs, this chapter points out the four major channels through which these partnerships can boost economic growth. The first and obvious channel is improving access to infrastructure, particularly to a desired level of quality. The second channel highlights the benefits of building technical and institutional capacity, transparency, and good governance from partnerships with the private sector. The third channel emphasizes better allocation of public resources. The fourth channel is the potential of PPPs to attract private savings in long-term investments, such as pension and sovereign wealth funds. Using insights from these channels, this chapter examines the relationship between the gradual rise of using PPPs in developing Asia and macroeconomic performance. The chapter then discusses the empirical findings, and recommends policy actions to ensure that infrastructure PPPs deliver the expected benefits.