Is the level of financial sector development a key determinant of private investment in the power sector ?
AbstractThis paper seeks to assess the extent to which a country's overall level of development and that of its financial sector, in particular, are factors that attract private capital into infrastructure projects. The authors investigate these effects in a 1990-2007 dataset on the power sector in 37developing countries. The results suggest that economic growth is a key determinant of private investors'investment in infrastructure projects, and that investors tend to take countries’ governance quality into account in their decisions to invest. The empirical results highlight that the development of the financial sector also plays a significant role in private investors'decisions to enter infrastructure sectors. In particular, the degree of country risk and exchange rate volatility is found to be negatively related to the volume of private sector investment in power projects. Furthermore, when the banking sector and the capital market are separately treated in the analysis, the existence of a well functioning capital market is the main attracting factor. In addition, the existence of an independent energy regulatory authority significantly improves the level of private investors'implication in energy projects. When accounting for the interactions between the overall economic development and the financial sector development variables, the effects of these variables are still significant and the results also confirm the importance of an independent energy sector regulator.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 5373.
Date of creation: 01 Jul 2010
Date of revision:
Emerging Markets; Debt Markets; Economic Theory&Research; Access to Finance; Private Participation in Infrastructure;
Other versions of this item:
- Gasmi, Farid & Lika, Ba & Noumba Um, Paul, 2010. "Is the level of financial sector development a key determinant of private investment in the power sector?," TSE Working Papers 10-194, Toulouse School of Economics (TSE).
- Gasmi, Farid & Lika, Ba & Noumba Um, Paul, 2010. "Is the level of financial sector development a key determinant of private investment in the power sector?," IDEI Working Papers 640, Institut d'Économie Industrielle (IDEI), Toulouse.
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
- L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-31 (All new papers)
- NEP-CFN-2010-07-31 (Corporate Finance)
- NEP-ENE-2010-07-31 (Energy Economics)
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