There are only a few empirical studies examining the macroeconomic impact of PPPs. With limited data, attribution or causality cannot be easily drawn out of macro analyses. Project-level analyses apply quasi-experimental approaches to estimate the effect of infrastructure PPP projects on welfare measures, including poverty reduction. But these evaluations do not have well-defined counterfactuals (Dintilhac, Ruiz-Nunez, and Wei 2015).
Mixed views emerge from the few macro studies of PPPs that have been done. Using the World Bank's Private Participation in Infrastructure Database, Trujillo et al. (2002) find that private sector participation in transport has a positive effect on income per capita. Using the same database, Rhee and Lee (2007) find a negative but not statistically significant coefficient on PPP investment, after controlling for fully publicly funded infrastructure. For the Republic of Korea, Kim et al. (2011) show that increased capital expenditure in infrastructure PPP investments expanded growth by as much as 0.2% in 2008.
Theoretical procurement models show the conditions that PPPs are desirable options for delivering infrastructure and related services over the traditional mode. PPPs make optimal use of the private sector's skills, technology, and innovation that are needed throughout a project's life, especially when fiscal resources are tight (Iossa and Martimort 2015; European PPP Expertise Centre 2015; de Bettignes and Ross 2004; Davies and Eustice 2005; and Henckel and McKibbin 2010). Infrastructure projects done through PPPs are more likely to reach the desired level of performance because contract agreements require private partners to deliver assets on time and within budget, manage project delivery, and maintain and refurbish assets (Davies and Eustice 2005).
Studies argue that PPPs guarantee value for money-broadly defined as the ability to improve the delivery of benefits relative to the associated costs across a range of alternatives. Bundling PPPs help reduce project life-cycle costs (Davies and Eustice 2005; Henckel and McKibbin 2010; and Iossa and Martimort 2015). Bundling also incentivizes private partners to design and build infrastructure at lower overall long-term costs and hand back well-maintained assets to the government at the end of a contract. Iossa and Martimort (2015) further note that bundling different PPP infrastructure phases incentivizes operators to invest more in asset quality compared with traditional procurement.
Because of the many risks involved in infrastructure projects, PPP arrangements help analyze and allocate risks to the party best placed to handle them. Risk allocation strategies in PPP contracts incentivize all parties to fulfill their contract obligations, and PPPs are natural filters for eliminating infrastructure projects that could turn out to be white elephants (Engel 2016; Henckel and McKibbin 2010). Poorly designed PPP contracts can lead to considerable costs that are borne by taxpayers. All aspects of PPPs must be carefully considered to avoid this, and these partnerships must be backed by strong institutions. Indeed, it is worth strengthening institutions for PPPs because doing this will have a beneficial ripple effect on other private endeavors and the general economy.