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Financing Infrastructure in India; Macroeconomic Lessons and Emerging Market Case Studies

  • James P Walsh
  • Jiangyan Yu
  • Chanho Park
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    Driving infrastructure development, notably mobilizing financial resources for infrastructure projects, has been challenging in many countries. This study includes two parts: an empirical analysis of macroeconomic risks associated with infrastructure booms, and a case study of four emerging economies about their practice of funding infrastructure development. The study shows that (i) there is no empirical evidence that rapid infrastructure growth would undermine contemporary macroeconomic performance, implying that room is created to accommodate infrastructure booms without compromising fiscal and external sustainability; (ii) banks may play an important role in financing infrastructure, but caution is needed to avoid directed lending and regulatory forbearance that the authorities may use to promote financing; (iii) capital market development is important to accommodate the usually high financing needs, and encouraging private investors to move into infrastructure would require regulatory and institutional improvements; and (iv) public support, including credit guarantees, may help bolster investors' confidence, but the authorities should carefully monitor and manage fiscal risks.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/181.

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    Length: 32
    Date of creation: 01 Aug 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/181
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    1. Dave Donaldson, 2010. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," NBER Working Papers 16487, National Bureau of Economic Research, Inc.
    2. David Aschauer, 1988. "Does public capital crowd out private capital?," Staff Memoranda 88-10, Federal Reserve Bank of Chicago.
    3. Lars-Hendrik Röller & Leonard Waverman, 1996. "Telecommunications Infrastructure and Economic Development: A Simultaneous Approach," CIG Working Papers FS IV 96-16, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    4. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
    5. Douglas Holtz-Eakin & Amy Ellen Schwartz, 1994. "Infrastructure in a Structural Model of Economic Growth," NBER Working Papers 4824, National Bureau of Economic Research, Inc.
    6. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
    7. David Canning & Peter Pedroni, 2008. "Infrastructure, Long-Run Economic Growth And Causality Tests For Cointegrated Panels," Manchester School, University of Manchester, vol. 76(5), pages 504-527, 09.
    8. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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