Private Participation in Infrastructure and Financial Sector Development: Evidence from Developing Countries

ABSTRACT

This article studies whether private participation in infrastructure (PPI) investments promote financial sector development (FSD). With data from 62 developing countries over the period 1990–2013, we provide evidence of a positive and significant relationship between PPI investments and FSD, irrespective of different control variables, estimation methods and measures of FSD. With heterogeneity tests, we illustrate that the promotion effect is larger in emerging countries than in the other countries; however, the difference is marginal. We also identify that both civil and common legal origins have a comparative advantage than socialist legal origin for FSD.

Key Words:

• developing countries
• financial sector development
• private participation in infrastructure

Acknowledgment

We thank the anonymous referees for very useful suggestions on an earlier draft of this article.

Funding

This work was supported by the Chinese Academy of Social Sciences [grant numbers 16CJY025], Hazardous Waste Invasion under Global Value Chain: assessments and countermeasures. Tong Fu acknowledges financial support by the National Natural Science Foundation of China (Project No. 71763009).

Notes

1. Due to space constraints, we only provide the most critical tables; supplementary materials are available online.

2. For expositional ease, we hereafter use the term “nonfinancial regulation quality” to mean the regulatory quality described above unless otherwise specifically noted.

3. This composite index is a proxy of nonfinancial regulatory indicators. This regulatory quality indicator includes the variable measuring the de facto importance of barriers to entry, but the variable excludes the barrier regulation in the financial sector or the barrier regulation on finance.

4. We do not use H-T for the heterogeneity test on emerging markets because the PPI policy partially determines that the country is an emerging market.

Additional information

Funding

This work was supported by the Chinese Academy of Social Sciences [grant numbers 16CJY025], Hazardous Waste Invasion under Global Value Chain: assessments and countermeasures. Tong Fu acknowledges financial support by the National Natural Science Foundation of China (Project No. 71763009).