The private and public sectors have their own motivations for using PPPs for infrastructure. The private sector wants to make a profit from building the infrastructure and delivering services. Governments want these projects to be in the public good, and to be more efficient because of private sector participation. For effective PPPs, both sectors must share the same goals of quality, efficiency, and accountability in building infrastructure and delivering services. So, what determines the private sector's participation in infrastructure?
The literature review examines emerging economies globally, with several studies on African countries providing particularly rich findings to draw implications for Asia (Table 6.1).
Table 6.1: Determinants of Private Participation in Infrastructure Investments from a Literature Review
| Research | Sample Coverage | Positive Drivers | Negative Drivers |
| Asante (2000) | Ghana | Public investment Private investment (lagged variable) Growth of real credit to private sector | Economic growth Macroeconomic and political instability |
| Zerfu (2001) | Ethiopia | Macroeconomic instability | |
| Ouattara (2004) | Senegal | GDP per capita Foreign aid | Credit to the private sector Terms of trade |
| Hammami et al. (2006) | International economies | Heavy public indebtedness Higher aggregate demand and market size Macroeconomic stability Institutional quality | |
| Kinda (2008) | International economies | Economic growth Physical infrastructure Bank credit to private sector | Macroeconomic and political instability |
| Ba, Gasmi, and Um (2010) | 37 developing countries (power sector) | PPP experience (lagged variable) Economic growth Financial development | Foreign exchange risk |
| Tewodaj (2013) | Low-and middle-income countries | Larger services sectors Open trade Large population Democracy Fiscal freedom Common law regime | Foreign aid Inflation |
| Kasri and Wibowo (2015) | 48 developing countries with majority Muslim population | Population Income Regulatory environment | Country risk |
GDP = gross domestic product, PPP = public-private partnership.
Source: Works cited in this table are listed in this chapter's Reference section.
For Ghana during 1970-1992, Asante (2000) shows that public investment, lagged private investment, and the growth of real credit to the private sector were the major determinants of private investment. Zerfu (2001) finds that gross domestic product (GDP), its growth rate, and public investment in infrastructure significantly promoted private investment in Ethiopia, but macroeconomic instability had the opposite effect.
Ouattara (2004), examining the long-term determinants of private investment in Senegal from 1970 to 2000, finds that public investment, GDP per capita, and foreign aid were positive influences, but credit to the private sector and terms of trade tended to hinder private investment. Hammami et al. (2006), in their empirical analysis of the cross-country and cross-industry determinants of PPPs, find this modality tends to be more common in countries where governments are heavily indebted, and where aggregate demand and market size are large. They find that macroeconomic stability is essential for PPPs. And they emphasize the importance of institutional quality, where less corruption and effective rule of law are associated with more PPP projects.
Kinda (2008), examining the determinants of private investment in infrastructure in 61 developing countries during 1970-2003, finds economic growth and the level of finance sector development, especially bank credit to the private sector, have significantly positive effects. But private investment in infrastructure is negatively associated with macroeconomic and political instability. Ba, Gasmi, and Um's (2010) empirical analysis of private investment in developing countries' power sectors during 1990-2007 emphasizes the importance of economic growth and finance sector development. In their dynamic panel model specifications for 37 developing countries, the authors point out that well-developed finance sectors, especially capital markets, are key determinants of private investment in the power sector. Gupta et al. (2001) find that bond markets in most emerging economies do not offer financial and risk-mitigating instruments for infrastructure projects because of their underdeveloped financial markets.
Sharma (2012) analyzes the factors determining infrastructure PPPs during 1990-2008 using the World Bank's Private Participation in Infrastructure Database, and finds that large, higher-income markets are positively associated with PPPs. Other positive factors include macroeconomic stability, regulatory quality, and good governance. Tewodaj's (2013) empirical analysis of infrastructure PPPs in low-and middle-income countries during 1995-2008 finds that countries with larger services sectors are more likely to attract PPPs. Low-and middle-income countries that are more open to trade and have high levels of fiscal freedom, countries with larger populations, and democracies are also more likely to attract PPPs. The availability of domestic credit is positively correlated with PPP investment, while foreign aid and inflation are also significant but negatively associated with PPP investment in these countries. Countries with large services sectors, large populations, and lower tax burdens are significantly and positively correlated with PPP investments.
Kasri and Wibowo (2015) use advanced panel estimators to develop a cross-country analysis of private finance determinants in 48 developing countries with majority Muslim populations during 2005-2011. Their evidence suggests that market conditions such as population, income and purchasing power, and institutional quality are strongly associated with attracting PPPs in these economies, and that country risk is a negative factor.