Promote Private Investment Research Articles

The rise and fall (?) of public-private partnerships in Israel’s local government

ABSTRACT Municipal-private partnerships (MPP), including BOT concessions, joint municipal-private corporations, and leveraging municipally owned land to promote private investment, have become major tools of urban development, but the 2008 global crisis seemed to have changed attitudes towards their application. Based on documents and open-ended interviews, our study examines the apparent retreat from MPP in Israel. Results show that BOT lost appeal in the 2010s, particularly among fiscally sound cities and water and sewage municipal corporations, not because of an ideological rejection, but largely due to low interest rates that eliminated its financial motivation. Regulatory hurdles also played a role in luring municipalities away from MPP in the centralised Israeli context. However, BOT remains in the municipal development toolbox and the study points at ‘maturation’, moving away from the financial motive to the capacity motive, mainly in fields out of municipal core tasks and in projects sufficiently isolated from external uncertainties.

Restoration concessions: a second lease on life for beleaguered tropical forests?

Logging has depleted timber resources across a considerable portion of the world's tropical forests, leaving them vulnerable to conversion to other land‐use types. This raises the question of whether management for restoration represents an economically viable alternative. We reviewed restoration concessions (areas of degraded state forest land leased to enterprises on long‐term [≥60‐year] licenses for restoration‐compatible business development) in Indonesia since their introduction in 2004 and found that, although many opportunities and actions are being explored, business models remain largely aspirational. Costs – including those associated with taxes and reporting, forest protection, community development, and restoration interventions – are high, while developing revenues at sufficient scale from carbon markets, non‐timber forest products, and ecosystem services is challenging. Potential solutions include the development of restoration‐compatible revenue streams and value‐added processing to generate income, investment in communities to bring them in as partners in restoration enterprises, and creation of a supportive regulatory environment by reducing statutory costs and eliminating perverse regulations. Restoration concessions are a scalable policy option for promoting private investment in restoration that could be replicated internationally to help meet ambitious global restoration targets.

The Moderating Role of Corruption in the Inverted U-Shaped Relationship Between Red Tape and Private Investment in PPP Projects: Evidence From Developing Countries

Government environment is the main determinant in attracting private investment into public–private partnership (PPP) projects, especially in developing countries. Red tape, an indicator of a government's efficiency, plays a critical role in private investment in PPP projects. Reasonable levels of red tape can enhance government transparency and promote private investment, while excessive red tape usually represents low governance efficiency and imposes further risk on private investors. This article explores how developing countries’ red tape affects private investment in PPP projects by examining the moderating effect of corruption. Analyzing a database of 308 PPP projects in 111 developing countries, the study reveals an inverted U-shaped relationship between red tape and private investment. Corruption weakens the positive relationship between red tape and private investment at low levels of red tape and mitigates their negative relationship at high levels. The study integrates the inconsistent results of previous research that postulated either a positive or negative relationship between red tape and private investment by proposing a nonlinear model. It also theorizes the moderating effect of corruption based on real management practice and illustrates its mechanism in absorbing private investment in PPP projects.

OFDI Impact on Private Investment in the Gulf Economies

Gulf Cooperation Council (GCC) countries are highly dependent on hydrocarbons, which puts them at great risk to maintain stability in the long run. GCC countries need private investment to reduce their reliance on state and diversify their economies apart from hydrocarbon. The role of private investment is crucial to economic stability and development. Literature suggests that outward foreign direct investment (OFDI) can play a vital role in promoting private investment. Therefore, using feasible generalized least squares (FGLS) and panel corrected standard error (PCSE) techniques, we checked the impact of the GCC countries OFDI on private investment and found that OFDI significantly complement private investment in the GCC countries. The complementary impact of OFDI on private investment in the GCC countries can be used as a tool to promote private investment, diversify their economies and hedge against the pitfalls of addiction to the hydrocarbon.

Political Patronage, Infrastructure, and Economic Growth: Evidence from China

Although all governments desire higher economic growth, they adopt different strategies to promote economic growth. Conventional wisdom holds that the endowments of economic resources determine the economic development model that best utilizes the local comparative advantage. This paper explores how governments' political resources influence their economic development strategies. With a difference-in-differences design applied to Chinese prefecture-level cities, I find that politically connected cities are more likely to obtain their superior's support to increase public investment in infrastructure. Moreover, politically connected cities also accumulate more public debts that may undermine the sustainability of their long-term economic growth. By contrast, other cities that lack such political connections are more likely to promote private investment by improving the pro-business environment. These results show that political resources make an economic model that features government investment and public debts more possible than the one that depends on vibrant entrepreneurship and private investment.

The Concurrent Effect of Financial Development and Trade Openness on Private Investment in India

This article examines the role of financial development and trade openness in promoting private investment in India. We use data (1960– 2013) from the World Development Indicators database. After checking the time series properties of the data, we employ auto-regressive distributed lag (ARDL) estimation technique to investigate the impact of the concurrent existence of financial development and trade openness on private investment and whether the effect of financial development is dependent on the level of openness. The results show that, independently, financial development and trade openness have significant positive effects on India’s private sector investment, in both the long run and the short run. However, the effect of the interaction between financial development and trade openness on private investment is significantly negative, suggesting that the effect of financial development on private investment depends on the level of openness. Therefore, we conclude that care should be taken in the design of policies that allow for the coexistence of financial development and trade openness if India aims at promoting private sector capital formation for job creation. JEL Classification: E22, E44, F10, F60

On the impact of public policies and wage formation on business investment in research and development

Against the backdrop of mediocre growth prospects in many countries, governments should do more to promote private investment in research and development (R&D). Public fiscal policies and the characteristics of wage formation are key as they affect both the incentives that firms face and their resources. This paper studies their impact at the macro level in a panel of 14 OECD countries since 1981, while we also account for the impact of unobserved common factors like the world level of knowledge. Tax incentives, government intramural expenditures on R&D, public R&D subsidies (if they are not too low nor too high) and especially investment in tertiary education, encourage business R&D investment. Wage moderation may also contribute to innovation, but only in fairly closed economies and in economies with flexible labour markets. In highly open economies with rigid labour markets, high wage pressure promotes investment in R&D. Innovation may then be the only competitive strategy for firms.

Causality between Chinese investment in Latin America and the governance indicators

This article analyzes the causal relationship between China’s outward foreign direct investment (FDI) and several governance indicators by performing a panel data analysis for Latin American countries. First, a long-term relationship was found between China’s outward FDI and three governance indicator variables: control of corruption (CC), regulatory quality (QR), and government effectiveness (GE). This result supports the idea that there is a statistical relationship between FDI and the governance indicators. We also found evidence of causality from FDI to CC, implying that after Chinese investment there is a change in the host country’s perception of corruption. In addition, causality from QR and GE to FDI was found. The result is evidence of how outward FDI effects the host country government’s ability to implement policies and regulations which promote private investment and the quality of public services.

Effects of Public Expenditure on Gross Domestic Product in Zambia from 1980-2017: An ARDL Methodology Approach

The paper explored the fundamental changes in public expenditure and the resulting effect on the gross domestic product using an ARDL approach for time series data over the period 1980-2017. The control variables included foreign direct investment and current account balance. The objective was to determine changes which had occurred with regard to the performance of GDP since 1980. A quantitative method approach was used to ascertain the relationship between the variables and analysed using the E-views 9 software. Cointegration results showed a long run relationship between GDP and government expenditure. In this regard, changes in government expenditure have a strong converse effect on GDP. Government expenditure, which has increased significantly in the past decade, is seen to have had negative effects both in the short run and long run. Contrary to theory, increased government expenditure may not be ideal for growing the Zambian economy. This could be due to the allocation of this public expenditure, i.e. the 2018 Budget had 24% of the expenditure directed to economic activities. Thus it is recommended that government practice increased fiscal discipline or reallocated resources as their expansionary fiscal policies are not yielding the intended results. Additionally, policies to promote private investment may be more beneficial for the Zambian economy. On the other hand, increased investment is also recommended with government encouraging more investment promoting policies as FDI is observed to have a positive impact in the short run though insignificant in the long run. These should ensure more investors are encouraged to stay longer and the impacts/externalities of their investments be accrued to the nationals to ensure long run benefits. The Zambian government should also ensure that the country diversifies its export base and enhances its external debt management to ensure positive and consistent impact of Current Account Balance in the long run.

Propuesta de caracterización de la renovación urbana en Chile. El caso de la comuna de Santiago Centro

A comprehensive characterization of urban renewal policies based on the analysis of the original texts, is proposed for the case of Santiago de Chile. The existences of three types of urban renewal policies that are produced in three different historical moments are found. The proposal is based on the differences between the initiatives that aim to transform the urban fabric of the consolidated city-center by investing public resources or promoting private investment. The analysis focuses on three aspects to affirm the existence of different types of urban renewal in Santiago: i) The problem that seeks to resolve the renewal process; ii) the criteria for selection and intervention in the city, chosen by the actors involved; iii) development and its formal expression.

Compatibility Between US-BIT Norms and the Need for Local Remedies Through Relevant Egyptian Investment Laws

This article investigates the legal mechanism designed for promoting private investment in Egypt through signing Bilateral Investment Treaties (BITs) including adoption of the United States of America's BIT Norms Model (US BIT Norms). It also explores their compatibility with the relevant Egyptian investment laws and investigates whether these norms had any significance in the creation of an investment environment in Egypt. The article cites examples from Egyptian investment laws to see whether these norms gave birth to any conflicts. The presence of Egypt has increased before the international tribunals. This article examines the post-adoption relevant investor-Egypt disputes in order to find out whether the allegations in these disputes hint at the abuse or failure of these BIT norms and whether these cases are a potential threat to the local remedies and the domestic legal and economic system of the country.

Research on the Influence of Real Estate Development on Private Investment: A Case Study of China

Private investment in China, as a developing country, is an important source of financing for Chinese SMEs (Small and Medium-Size Enterprises) and has played a major role in the development of the real economy. However, in 2016, the growth rate of private investment in China dropped from 10.18% to 3.17%, which had a significant impact on the real economy. At the same time, China’s real estate market has developed rapidly, attracting a large number of capital inflows. The relationship between real estate development and private investment in China is worth considering. This study first, theoretically analyzes the influence mechanism of real estate industry on private investment, pointing out that within a modest development range, the development of real estate industry can promote private investment through the industrial linkage, urbanization, and balance sheet effects, but when real estate is overdeveloped, it has an inhibitory effect on private investment through vampire effect, raising costs and reducing demand effect. In other words, real estate has different effects on private investment in different developmental periods. Therefore, there is a non-linear relationship between the two variables. Second, the relevant provincial panel data of 31 provinces in mainland China from 2003 to 2015 were selected. Using the dynamic panel system Generalized Method of Moments (GMM), this study estimated the correlation between real estate development and private investment. The empirical results showed that the development of the real estate industry has a significant impact on the level of private investment; the two showing an “inverted U-shaped” relationship. At present, in some provinces in China, the real estate industry has exceeded the inverted U-shaped threshold. To boost the vitality of private investment in promoting real economic growth, the development of the real estate industry should be restricted, and house prices should be properly regulated.

Mobilizing private finance for coastal adaptation: A literature review

Coastal adaptation can reduce climate change impacts and investing now, though costly, will bring greater benefits over the longer term, particularly in urban areas. Yet public actors currently cover a small fraction of needed coastal adaptation investments, a finance gap set to widen as coastal adaptation costs continue to increase. Mobilizing private finance for coastal adaptation is thus a salient challenge, as emphasized in the Paris Agreement. Key under‐researched dimensions of this challenge are what promotes private investment in coastal adaptation and how can public actors’ interest in adaptation be aligned with private investor interests. To address this, we review the literatures on coastal adaptation finance and on financial arrangements involving both public actors and private investors. We describe key actors and interests, and identify coastal financial arrangements that align public actor and private investor interests, finding that private provisioning, public–private Partnerships (PPP), and public debt arrangements are promising. We then survey empirical examples, finding that private provisioning attracts investment when returns are high, for example, in urban real estate, and that PPPs attract dredging and construction companies’ investment, particularly for adaptation measures with a large share of operational costs, for example, beach nourishment. We find little evidence of institutional investment through public debt instruments. A number of policy instruments, for example, concessional loans, tax incentives, and standards, may address this gap and enhance private coastal adaptation investment. Our results are also relevant for other sectors that involve long‐term infrastructure adaptation measures.This article is categorized under:Climate Economics > Iterative Risk‐Management Policy PortfoliosVulnerability and Adaptation to Climate Change > Learning from Cases and Analogies

Public And Private Investment Nexus In Bangladesh: Crowding-In Or Out?

To accelerate the GDP growth rate, the government of Bangladesh has been raising its public investment since late 2000s which is reflected in the rise of public investment-GDP ratio from 4.50% in 2008 to 6.90% in 2015. At the same time, private investment has remained stagnant since 2008, hovering around 22% of GDP. This trend of public and private investment suggests that public investment might have a crowding-out effect on private investment. Given this background, the main objective of this paper is to examine the relationship between public and private investment in Bangladesh over the period 1981-2015. To this end, we estimate a model in the autoregressive distributed lag bound testing framework using real private investment, real public investment, real GDP, and the real interest rate. In addition, since Bangladesh's trade and financial sectors went through intensive liberalization reform in the early 1990s, it warrants an investigation whether liberalization has any significant effect on the relationship between public and private investment. Hence, in this study, we pose an additional question of how the relationship between these two variables is affected by the liberalization of the financial and trade sectors - an issue received less attention in previous studies. To capture this effect, we extend our model by introducing a dummy variable for liberalization and an interaction term. Our results show that public investment negatively affects private investment both in the long run and short run, suggesting the existence of crowding-out. However, the crowding-out effect is partially neutralized by the favorable effect of liberalization. We also find that private investment is weakly sensitive to the real interest rate. These findings have important policy implications for both fiscal and monetary authorities. First, given the relatively large magnitude of crowding-out effect, it will be imperative for the fiscal authority to select those investment projects which have greater productivity and spillover effects so that crowding-out effect can be minimum. Second, the weak sensitivity of private investment to the interest rate points to a weak interest rate channel of monetary policy. Therefore, interest rate cut may not be successful in promoting private investment during economic down-turn. Third, as liberalization moderates the crowding out effect, Bangladesh can reap more benefit from public investment by removing the impediments to trade and financial deregulations.

Government size, public governance and private investment: The case of Vietnamese provinces

The government’s role in promoting private investment, which can be assessed through two dimensions — government size and governance quality — has scarcely been addressed in the previous literature. Using a dataset of 63 Vietnamese provinces for the period of 2005–2013, the present study attempts to investigate how these two dimensions serve to promote private investment in Vietnam. The two-step system Generalized Method of Moments contributes to clarifying the nonlinearity of the relationship between provincial government size and private investment growth. Furthermore, the threshold effect of government size varies across provinces due to differences in provincial governance quality, and provinces with a high quality of local governance have the potential to raise the threshold level of government size. Additionally, several aspects of local public governance such as entry cost, legal system, transparency, and biased policy are found to have significant associations with private investment, whereas others are not. The results show that advancing public governance remains a big challenge for Vietnam’s private sector development policies. Changes in public governance quality are, therefore, crucial to improve the effects of government size on private investment.

From Open Door to Nationalization: Oil and Development Visions in Bolivia, 1952–1969

AbstractAfter the 1952 Bolivian Revolution, oil assumed an increasingly important role in Bolivia's economy and popular consciousness. Oil nationalists were deeply divided, however. While the Movimiento Nacionalista Revolucionario (MNR) regime sought economic modernization, labor and the Left also demanded major redistribution. These divisions influenced the multiple changes in hydrocarbon policy after 1952. An aversion to radicalization contributed to MNR leaders' 1955 decision to promote private investment in accordance with US wishes. Soon thereafter, a growing nationalist coalition challenged this open-door policy, culminating with the 1969 nationalization of Gulf Oil's properties by the military regime of Alfredo Ovando Candía. Ironically, though, the nationalization was driven partly by the same conservative logic that had animated the MNR's liberalization, in that Ovando favored nationalization as an alternative to redistribution. While tracing the rise and impact of Bolivian hydrocarbon nationalism, this case study also highlights common conflicts within resource nationalist coalitions and how those conflicts can influence policy decisions.

Exchange Rate Behavior in Ghana: Is there a Misalignment?

Exchange rate misalignment results in resource misallocation and could hamper overall economic growth. Persistent undervaluation leads to high levels of inflation which in turn creates macroeconomic instability while overvaluation leads to trade imbalances with consequential balance of payment problems. Since the redenomination exercise in 2007, the Ghana cedi has been consistently depreciating. This has sparked a lot debate in the public media and among academics concerning possible misalignment of the cedi. This paper investigates the behaviour of the Ghanaian cedi using the behavioral equilibrium exchange rate approach for the period 1980Q1 to 2013Q4. The Johansen cointegration and error correction modelling framework is employed in estimating a model of the real effective exchange rate. Unlike previous studies, this paper employs the real effective exchange rate computed by authors due to certain adjustments made in the International Monetary Fund, International Financial Statistics series. The results point to significant misalignment of the exchange rate with undervaluation before the redenomination in 2007 and overvaluation afterwards. The empirical finding of this study has implications for policy direction. Monetary authorities should seek to strike a balance between the two extremes of overvaluation and undervaluation. This may be achieved by pursuing a pure floating exchange rate system where the exchange rate is allowed to follow the path dictated purely by market forces, without any intervention by the Central Bank. Alternatively, a properly managed float system of exchange rates may be pursued. Hence, given the current state of overvaluation, a once-off devaluation of a minimum of 20% could be considered to bring the exchange rate close to its equilibrium. Subsequently, monetary authorities should closely monitor deviations from the equilibrium path and engage in timely interventions. In addition, policy should be directed at strengthening the economy’s fundamentals with particular attention to the export and productive sectors by creating a conducive business environment that promotes private investment and supports the production of high quality goods of international standard both for the external and domestic market.

The Main Determinants of Private Investment in The WAEMU Zone: The Dynamic Approach

This article investigates the main determinants of private investment in the West African Economic and Monetary Union (WAEMU). After checking for unit root and co-integration, Error Correction Model is specified, and three estimators are performed: Dynamic Fixed-Effects, Mean Group, and Pooled Mean Group. Hausman tests show that the Dynamic Fixed-Effects Estimator is more efficient and consistent than others. Results suggest that, in the short-run, private investment in the WAEMU zone is determined by the aggregate demand conditions: gross domestic product and output gap, while, in the long-run, it is determined by gross domestic product, and political stability. The short-run elasticity of gross domestic product and output gap are statistically significant and average to 5.7 and 0.06, respectively. The long-run elasticity of gross domestic product and the semi-elasticity of political stability are statistically significant and average to 2.4 and -0.25, respectively. These finds imply that, to promote private investment in the WAEMU zone, there is a need among others for more proper design and implementation of aggregate demand management policies, and political framework stability.

Endogenous market structures in the credit market and Ricardian equivalence

We analyze the impact of imperfect competition in banking on fiscal policy in a dynamic model. In an exchange two-period economy the impact of deficit spending is to reduce private consumption and increase the spread between deposit and lending rates. The reason is that a tax cut forces consumers to save more and makes their supply of savings more rigid, which softens competition between banks leading to lower rates on deposits and a more than proportional increase in savings. In a closed production economy this reduces the equilibrium interest rate on borrowers, which promotes private investment.

Financing Climate Change Adaptation in Kenya

Climate change adaptation has not received much attention as mitigation, with financing mechanisms concentrating climate change mitigation. This is however changing considering the current climate negotiations emphasis on adaptation being treated with the same urgency as mitigation. Kenya is vulnerable to the impacts of climate change, calling for urgent adaptation measures. It has various sectorial policies that deal with adaptation. It introduced a Climate Adaptation Fund to fund adaptation at the county level and its environmental agency was accredited in March 2012 and has already submitted adaptation fund project.Based on this background, the paper examines mechanisms in place to finance adaptation, to access international adaptation fund and whether the mechanisms are sufficient. Kenya will need to put up mechanisms to promote adaptation funding, including policies that promote private investment in adaptation measures.