Quantile analysis of investment in private participation in infrastructure projects

Abstract

Understanding the factors influencing investor's decision to participate in a private participation in infrastructure (PPI) project is key to mobilizing private funding and closing up infrastructure financial gap among developing countries. However, inconsistent empirical results have been obtained in the literature regarding the importance of PPI determinants. Different from the existing literature, we propose using a quantile regression method to reconcile the discrepancy and capture a non-homogeneous relationship between various affecting factors and PPI investment based on data from Belt and Road (BR) countries. As investment size grows, institutional factors, such as country's stability, degree of democracy and regulatory quality, play an increasingly critical part in drawing funds, and investors become more sensitive towards country's governance standard. With regard to multilateral development banks' (MDBs') role in supporting PPI and its underlying mechanisms, our results show that MDBs' aiding role is more significant among medium and large-scaled projects and monetary support is proved to be the most efficient means among other support types offered by MDBs. Further test reveals that instead of hindering PPI investment due to potentially conflicting objectives among multiple MDBs, MDBs' joint effort in one PPI project shows a compounded positive effect on PPI financing, suggesting that an increased collaborations among MDBs may be beneficial. However, no empirical support is found between financial market development of host country and total PPI investments. Overall, this study sheds lights on host country and MDBs' future policy designs along BR countries.