Public-Private Partnerships in Infrastructure: the Impact of Corruption

Abstract: Public-Private Partnerships in infrastructure provision is gaining attention as an answer to the growing global infrastructure deficit, providing an effective model for sharing of risk and responsibility between the public and private sector. Such partnerships are also important channels of private investment, FDI and development assistance into an economy, but the extent to which these effects of Public-Private Partnerships are realized is likely to depend on the institutional setting. The aim of this paper is to determine the impact of corruption on these three central features of Public-Private Partnerships in infrastructure provision, thereby addressing a knowledge gap in extant literature. An empirical analysis of project-level data from 117 low- and middle-income countries suggests that corruption presents an obstacle to private sector participation in Public-Private Partnerships. The results further indicate that corruption is a significant predictor of the extent of foreign investor participation and development assistance only in certain sectors and regions. Finally, the results suggest an important role of multilateral development banks in attracting FDI into Public-Private Partnerships, as development assistance is found to significantly increase the probability that at least one of the private sector partners in a Public-Private Partnership is a foreign firm.