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Financing Infrastructure in Developing Countries: Lessons from the Railway Age

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  • Barry Eichengreen.

Abstract

This paper considers the role of infrastructure investment in the economic development of the regions of overseas European settlement in the 19th century. Its premise is that the pattern of investment in general, and the roles of public intervention and external finance in particular, were consequences of the structure of financial markets in countries in the early stages of economic development. Government intervention, external finance and debt-servicing difficulties were correlates of the financial-market imperfections that gave rise to informational asymmetries, moral hazard and adverse selection, while government policies to overcome asymmetric information encouraged management to engage in bankruptcy for profit. The tradeoff between credit rationing and bankruptcy for profit is at the heart of the paper.

Suggested Citation

  • Barry Eichengreen., 1994. "Financing Infrastructure in Developing Countries: Lessons from the Railway Age," Economics Working Papers 94-230, University of California at Berkeley.
    • Handle: RePEc:ucb:calbwp:94-230
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    References listed on IDEAS

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    1. George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 1-74.
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    4. David de Meza & David C. Webb, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 281-292.
    5. Jenks, Leland H., 1944. "Railroads as an Economic Force in American Development1," The Journal of Economic History, Cambridge University Press, vol. 4(1), pages 1-20, May.
    6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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    Cited by:

    1. Dan Bogart & Latika Chaudhary, 2012. "Regulation, Ownership, and Costs: A Historical Perspective from Indian Railways," American Economic Journal: Economic Policy, American Economic Association, vol. 4(1), pages 28-57, February.
    2. Fay, Marianne & Martimort, David & Straub, Stéphane, 2021. "Funding and financing infrastructure: The joint-use of public and private finance," Journal of Development Economics, Elsevier, vol. 150(C).
    3. Vincent Bignon & Rui Esteves & Alfonso Herranz-Loncán, 2015. "Big push or big grab? Railways, government activism, and export growth in Latin America, 1865–1913," Economic History Review, Economic History Society, vol. 68(4), pages 1277-1305, November.
    4. Olivier Debande, 1997. "Le rôle du secteur privé dans le financement des infrastructures : une mise en perspective historique," Revue Économique, Programme National Persée, vol. 48(2), pages 197-230.
    5. Singh, Nirvikar & Srinivasan, T. N., 2004. "Fiscal Policy in India: Lessons and Priorities," Santa Cruz Department of Economics, Working Paper Series qt8nx3v467, Department of Economics, UC Santa Cruz.
    6. Hugh Goldsmith, 2014. "The Long-Run Evolution of Infrastructure Services," CESifo Working Paper Series 5073, CESifo.
    7. Ramamurti, Ravi, 1997. "Testing the limits of privatization: Argentine railroads," World Development, Elsevier, vol. 25(12), pages 1973-1993, December.
    8. Francesco Campanella & Luana Serino & Teresa Nelli & Domenico Graziano, 2018. "Macroeconomics Effects on Project Finance Performances and Sustainability," International Business Research, Canadian Center of Science and Education, vol. 11(6), pages 21-28, June.
    9. Penyalver, Domingo & Turró, Mateu & Williamson, John B., 2019. "Measuring the value for money of transport infrastructure procurement; an intergenerational approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 119(C), pages 238-254.
    10. Bogart, Dan, 2022. "Infrastructure and institutions: Lessons from history," Regional Science and Urban Economics, Elsevier, vol. 94(C).
    11. Bogart, Dan & Chaudhary, Latika, 2015. "Off the rails: Is state ownership bad for productivity?," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 997-1013.
    12. Shima Amini & Steven Toms, 2021. "Elite directors, London finance, and British overseas expansion: Victorian railway networks, 1860–1900," Economic History Review, Economic History Society, vol. 74(2), pages 496-521, May.
    13. Jeff Muldoon & Eric W. Liguori & Shelby Solomon & Josh Bendickson, 2023. "Technological Innovation and the expansion of Entrepreneurship Ecosystems," Review of Managerial Science, Springer, vol. 17(5), pages 1789-1808, July.
    14. James Alm, 2015. "Financing Urban Infrastructure: Knowns, Unknowns, And A Way Forward," Journal of Economic Surveys, Wiley Blackwell, vol. 29(2), pages 230-262, April.
    15. P. Nayak, 2007. "Infrastructure Development in India An Appraisal," Working Papers id:980, eSocialSciences.

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