Politics and Infrastructure Investment

Abstract

What is the impact of political interference on a nation's level of infrastructure investment? Existing research on both private and state-owned enterprises (SOEs) appears to offer somewhat contradictory insights on this point. In some cases, additional constraints that limit the ability of political actors to interfere are hypothesized to increase investment levels, while in others the effect is hypothesized to be negative. We argue that these seemingly contradictory conclusions are in fact special cases of a more general phenomenon whereby the constraints that political institutions impose on political actors interact with political actors' electoral objectives, which are in turn determined by the political strength of the investing entity's interest group competitors. Thus, the probability of change in the policy regime interacts with the expected direction of a policy shift to determine the investment level. Our econometric analysis, which uses a panel data set covering the electric utilities of 78 countries during the period 1970 ? 1994, is consistent with these hypotheses and consequently points to the potential for a more general theory regarding the impact of political institutions on investment in the private and public sectors.