Determinants of Public-Private Partnerships in Infrastructure Provision: Evidence from Muslim Developing Countries

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(ProQuest: ... denotes formulae omitted.)This paper investigates the determinants of private involvement in public infrastructure provision in Muslim developing countries. The issue is considered important due to the persistent gap between the demand for and supply of public infrastructure in most of the Muslim developing countries. In this regard, an important infrastructure provision scheme increasingly utilised by the developing nations is Public-Private Partnership (PPP). Nevertheless, the policy outcomes of this scheme are diverse. Hence, when such schemes are implemented in those countries, improvements in public infrastructure and higher achievements in development expected from the policy seem to be limited.Based on that perspective, this study employs advanced panel estimators to develop a cross-country analysis of private finance determinants in 48 Muslim developing countries for the period 2002-2011. The findings suggest that market conditions, institutional qualities and country risks are the most crucial factors determining the private involvement in infrastructure financing in the Muslim countries. It is hoped that the findings will encourage policy-makers in these countries to prioritise this agenda in their efforts to attract private investment in public infrastructure, which in turn will contribute to higher economic growth and better development in the Muslim region.1.IntroductionIt is generally known that a well-functioning and efficient infrastructure is instrumental in economic growth and development. It supports a more efficient production process, attracts more businesses and increases living standards. It also strengthens economic integration and facilitates trade as it eases the access to goods and services. Furthermore, infrastructure projects can create a demand for skilled labour, potentially reducing the unemployment problem and benefiting the economy in the long term (SESRIC, 2013a). As such, in a wider perspective, many studies such as those by Aschauer (1989), Munnell (1990), Prud'homme (1993), Canning and Fay (1993), and Easterley and Rebelo (1993) suggest that there is a link between the provision of public infrastructure and economic growth and development.The key roles of public infrastructure availability in supporting economic growth, distributing wealth and reducing poverty have been among the main reasons why governments of developing countries, including Muslim countries, have strongly prioritised infrastructure development in their agendas. Several efforts have been made by a number of Muslim countries to accelerate infrastructure provision, particularly roads, railways, ports, power generation and water treatment. Unfortunately, many of these countries are constrained by a lack of government resources (limited budgets), inefficient state-owned enterprises, unskilled labour and low level of technology. Therefore, they are unable to expand the development of public infrastructure facilities to the level required to increase the quality standards of life (SESRIC, 2013 a).As limited budget capacity is believed to be the main constraint on public infrastructure provisions, an alternative form of financing to conventional public funding is considered an important remedy for the problem. In recent years, private financing has been regarded as a potential alternative for developing public infrastructure. In addition to providing supplementary sources of funding, it is seen as having more advantages than public financing, particularly in terms of improving projects' value-for-money, shortening delivery times and reducing projects' costs (Yescombe, 2007). This sort of arrangement has been applied in many parts of the world in different guises. The most common type is usually called Public-Private Partnership (PPP), while in some Commonwealth countries such as the UK and Malaysia it is well known as Private Finance Initiative (PFI). In other countries, the arrangement is often called Private Participation in Infrastructure (PPI), Private Sector Participation (PSP), Privately-Financed Projects (PFP), P3, or P-P Partnership (Yescombe, 2007). …