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Financing Infrastructure in Developing Countries: Lessons from the Railway Age

  • Eichengreen, Barry

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.

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Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt39z8346j.

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Date of creation: 01 Oct 1994
Date of revision:
Handle: RePEc:cdl:econwp:qt39z8346j
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  1. Jenks, Leland H., 1944. "Railroads as an Economic Force in American Development," The Journal of Economic History, Cambridge University Press, vol. 4(01), pages 1-20, May.
  2. repec:tpr:qjecon:v:102:y:1987:i:2:p:281-92 is not listed on IDEAS
  3. Jenks, Leland H., 1951. "Britain and American Railway Development," The Journal of Economic History, Cambridge University Press, vol. 11(04), pages 375-388, September.
  4. 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.
  5. 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.
  6. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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