Financing infrastructure in developing countries : lessons from the Railway Age
AbstractArguments for financing infrastructure development through government subsidies and foreign borrowing meet with increasing skepticism. Numerous"white elephants"subsidized by governments have strengthened doubts about the efficacy of public finance, and the debt-servicing problems of the 1980s have weakened arguments for foreign borrowing. Recent innovative suggestions for financing infrastructure investments in developing countries have a back-to-the-future quality. At the heart of the nineteenth century debate on financing infrastructure development - especially railways - lay certain concepts: relying on private finance, encouraging the growth of domestic financial markets, and choosing financial instruments that minimize the risk of dependence on foreign funds. The author reviews the historical record in an attempt to glean lessons for developing countries today. In the nineteenth century, much as in many of today's less developed and less liberalized economies, not all the informational and contractual preconditions for efficient private or commercial finance of infrastructure projects prevailed. In some regions, it was difficult to tap investors at home or abroad. Many countries lacked the private institutions (such as universal banks) and public ones (such as regulatory agencies) needed to facilitate monitoring, to discipline management, and to ensure an adequate flow of information to investors. In places as diverse as Canada, India, Spain, and the United States, getting enough finance often required that the government provide collateral (land grants) and bond guarantees - especially where asymmetric information caused credit rationing. The main lessons: exploiting nontraditional approaches to financing infrastructure investment requires action on two fronts. First, liberalizing and developing domestic financial markets. And second reforming administrative mechanisms that ensure accountability from enterprises enjoying government subsidies or guarantees.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1379.
Date of creation: 30 Nov 1994
Date of revision:
Financial Intermediation; International Terrorism&Counterterrorism; Banks&Banking Reform; Environmental Economics&Policies; Economic Theory&Research;
Other versions of this item:
- Eichengreen, Barry, 1995. "Financing Infrastructure in Developing Countries: Lessons from the Railway Age," World Bank Research Observer, World Bank Group, World Bank Group, vol. 10(1), pages 75-91, February.
- Eichengreen, Barry, 1994. "Financing Infrastructure in Developing Countries: Lessons from the Railway Age," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt39z8346j, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Barry Eichengreen., 1994. "Financing Infrastructure in Developing Countries: Lessons from the Railway Age," Economics Working Papers, University of California at Berkeley 94-230, University of California at Berkeley.
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