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【Economic Modelling】Can a new model of infrastructure financing mitigate credit rationing in poorly governed countries?

2020-12-26

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

Jiajun Xu, Xinshun Ru, Pengcheng Song

 

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

 

JEL classification

H54; G23; C61

 

Please read the paper via the link below:

https://authors.elsevier.com/a/1cIDtyGFsMbij

 


 

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Economic Modelling

The International Journal of Theoretical and Applied Papers on Economic Modelling

  • CiteScore: 4.2 

  • Impact Factor: 1.930 

Economic Modelling - a scholarly journal which came into being in 1984 - fills a major gap in the economics literature, providing a single source of both theoretical and applied papers on economic modelling. The journal's prime objective is to provide an international review of the state-of-the-art in economic modelling.

Attachments:

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