Can a new model of infrastructure financing mitigate credit rationing in poorly governed countries?

Jiajun Xu, Xinshun Ru and Pengcheng Song

Economic Modelling, 2021, vol. 95, issue C, 111-120

Abstract: We explore why resource-financed infrastructure—whereby developing countries pledge future resource revenues to repay infrastructure loans—mitigates credit rationing in poorly governed countries. Using a novel project-level database, we find that the loan sizes for resource-financed infrastructure are much larger than those determined by the traditional government infrastructure purchasing model especially in poorly governed countries. We use the credit rationing model to explain these empirical patterns. The traditional government infrastructure purchasing model suffers from two limitations: the borrowing government may steal infrastructure funds, or fail to make a credible commitment to using taxation to repay its sovereign infrastructure loans. The new financing model solves such problems by allocating loans directly from the lender to the contractor minimizing government corruption, and channeling resource revenues into an independent escrow account to repay infrastructure loans. Our findings highlight that this new infrastructure financing model can alleviate credit rationing in poorly governed, resource-rich countries.

Keywords: Infrastructure financing; Resource-financed infrastructure; Development banks; Public infrastructure; Credit rationing (search for similar items in EconPapers)
JEL-codes: C61 G23 H54 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999320312621
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:95:y:2021:i:c:p:111-120

DOI: 10.1016/j.econmod.2020.12.001

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().