The variables just discussed are microeconomic in nature since they are bank-and project-specific. But macroeconomic variables also affect bank lending decisions. For the model estimation, following Hammami, Ruhashyankiko, and Yehoue (2006), GDP per capita is included as an instrument to measure market size and to proxy for the potential for risk diversification. The inflation rate also plays a role in potentially increasing the weighted average cost of capital relative to the net present value, translating into credit risk to lenders. Additional factors reflecting macroeconomic risk include the ratio of government debt to GDP as an indicator of sovereign default, volatility estimates of GDP growth, inflation, and exchange rates.8 In a further effort to focus on the state of the enabling environment for PPP infrastructure projects to reach financial closure and become operational, and on the overall investment climate, the level of investment in PPP projects as percentage of GDP, and indices for political stability and regulatory quality, are included.