Infrastructure Investment and Growth in Developing Countries: Does the Type of Contract Matter?

Abstract

The aim of this article is to verify whether public investment in infrastructure is effective in terms of growth. While there is extensive literature analysing the effect of public capital stock on development and growth, comparatively less attention has been devoted to the contractual mechanisms characterising this investment. In this article, we focus on private participation in infrastructure projects through forms of public–private partnerships and verify whether the use of such contracts promotes economic growth. By analysing the performance of 81 developing countries over the period 1991–2008, we found that public–private partnerships are particularly relevant in terms of growth for high-income countries, whereas we could not find significant effect for low-income countries. We interpret this result as evidence of the relevance of better institutions, especially in terms of quality of regulation and rule of law, for attracting private investment in infrastructure projects and then for promoting growth.