Association for Public Policy Analysis & Management

Infrastructure is the foundation of modern economies and societies. A solid infrastructure system is of vital importance for any country to support economic development, improve quality of life, and strengthen global competitiveness. Due to the growing infrastructure needs and constrained public sector budgets, governments around the world are increasingly turning to Public Private Partnerships (PPPs) to deliver infrastructure by leveraging private sector resources and expertise. According to the World Bank, as of 2016, 7,132 infrastructure PPPs projects with a total investment of over $2,585 billion have been financially closed among 139 middle- and low-income countries since 1990. Despite the great progress in the global utilization of PPPs, there are key obstacles that hinder the implementation of PPPs projects in developing countries. Among them, one salient barrier is that government corruption exposes PPPs contractual arrangements to various political and financial risks. To date, few studies have empirically analyzed the influence of institutional environment on PPPs. Responding to this gap, this research aims to empirically investigate whether government corruption has a significant detrimental effect on the implementation of infrastructure PPPs projects in middle- and low-income countries.

To achieve this purpose, we draw on institutions and collaboration theories to set up the theoretical predictions of the study. Then we empirically test the predictions about the effects of public corruption on the implementation of infrastructure PPPs using cross-country data. To increase the measurement validity and reliability, we employ multiple measures of country-level corruption, including the Corruption Perception Index (CPI) from Transparency International (TI), the Corruption Risk Index from International Country Risk Guide (ICRG), and the Control of Corruption Index from Word Bank (WB). We utilize four dependent variables to operationalize the implementation of PPPs, including the number of executed PPPs projects, the dollar value of investment in PPP projects, the degree of private participation in the arrangement of PPPs, and the failure rate of PPPs implementation. Data are from the World Bank’s Private Participation in Infrastructure (PPI) project database. The models control for various political, fiscal, economic, and cultural context in each country. We use a panel data set of 125 countries from 1990 to 2015. In order to deal with the econometric issue of endogeneity between corruption and the implementation of PPPs infrastructure projects, we employ both panel instrumental variables estimation and dynamic panel model estimation.

The paper fits the panel of public-private partnerships well. Our findings will contribute to the burgeoning literature on this subject in three ways. First, the study expands the theoretical understanding on the institutional determinants of public-private collaboration in infrastructure financing. Second, it explores how public corruption matters for the implementation of infrastructure PPPs projects. Third, it offers policy recommendations on fighting corruption and building robust institutional capacity to facilitate private participation in infrastructure investment.