Impacts of the Patterns of Financing on Logistic Infrastructure in CAREC Member Countries

Abstract

This study explores how both domestic and external private sector funding affects infrastructure development and economic growth. It is hypothesized that, since the political and economic history of the Central Asian Regional Economic Cooperation (CAREC) member countries plays an important role in the determination of their infrastructure financing, private sector financing will differ as compared to the West. The study tests the effects of logistics infrastructure on economic development and covers 219 countries from 2007 to 2016. It concludes that external public sector debt is a significant determinant of logistic infrastructure magnitude and quality, while the share of short-term debt in total external debt also affects logistic infrastructure positively. Surprisingly, no significant impact of private sector external debt on infrastructure development is proved. Other than domestic credit to the private sector, the most important determinant of logistic infrastructure development is long-term public sector external debt, an indicator of government participation. Notably, the indices of logistic infrastructure are much lower in CAREC countries, which indicates demand for investment in infrastructure development. Foreign direct investment is a significant determinant of per capita income; however, the presence of external debt falsifies its impact. It is external financing which supports sustainable infrastructure development.