Bridging the gap: Mobilization of multilateral Development Banks in Infrastructure

Abstract

We explore how Multilateral Development Banks (MDBs) can help to fill a large infrastructure financing gap in developing countries by indirectly mobilizing resources from other entities. The analysis focuses on more than 6,500 transactions in 2005–2020 to low-income developing and emerging markets from the Infrastructure Journal database. Using granular data aggregated at the country-sector level, we analyze the dynamics of flows from different actors to different infrastructure sectors and control for a wide range of fixed effects. MDB lending significantly increases the inflows from other sources. Cross-border and domestic resources are mobilized from the official and private sectors. Results exhibit country heterogeneity. Mobilization occurs in countries of all income levels though it decreases as a country’s income increases. In countries that use capital controls frequently, mobilization effects are undermined. When the 2008 global financial crisis hit, no difference in mobilization effects was found, unlike the COVID-19 pandemic when mobilization effects were weakened. Finally, we find evidence of complementarity between bilateral and multilateral financing in mobilizing resources. The findings survive a long battery of robustness checks, and no evidence of anticipation effects is found.