This chapter aims to shed useful light on the role that greater access to finance-especially bonds-can play in promoting public-private partnership (PPP) investments in developing countries. Most developing countries still depend heavily on fiscal financing for infrastructure projects although great efforts have been made to use private capital. Our empirical results reconfirm that banks remain the main financiers for infrastructure projects.1 But domestic bond markets with enough depth and liquidity need to be developed to provide long-term funding for private entities looking to invest in infrastructure through PPPs.
Interestingly, our empirical results show a negative impact on the development of domestic bond markets from PPP investments. One possible interpretation of this is that infrastructure financing using government bonds, which dominate bond markets in developing countries, reduces the participation of the private sector by restricting its access to financing through corporate bond markets. Our evidence underlines the importance of well-functioning corporate bond markets in developing countries to make long-term financing available for the participation of the private sector in infrastructure.
After a brief overview of PPPs in infrastructure financing, this chapter reviews the literature that identifies the major determinants of infrastructure PPPs, and describes the data and empirical framework used. We then present our main empirical findings on the determinants of PPPs in 12 selected developing countries.2 From these findings, we identify the main obstacles for attracting private capital for infrastructure investments and discuss the economic and financial market conditions that need to be in place to attract more private investment in infrastructure for developing countries.