Financing Infrastructure in Developing Countries

Abstract

This article develops a theoretical framework to analyze options for financing infrastructure in developing countries. We build a basic model that gives motivations for using a combination of public finance, private debt and private equity. The model is then extended in a number of ways to examine a variety of factors that are important for developing countries when considering financing choices. We focus in particular on key institutional weaknesses that are often important for infrastructure investment. Overall, we show that such weaknesses can be key in determining financing choices, but that they do not all push in the same direction. Financing schemes must therefore be adapted to consider the institutional limitations that are most pertinent in any given context.

Keywords: Finance, Development, Infrastructure

JEL Classification: G32, G38, H54, O16