Political Stability and the Contribution of Private Investment Commitments in Infrastructure to GDP: An Institutional Perspective

Abstract

New institutional economics and transaction costs economics assert the importance of political stability as the primary determinant of an economy’s institutional quality. Rallying both perspectives, this article investigates the impact of political stability on public-private partnerships’ performance. A political system founded on impersonal organizations corrects for the natural monopoly characteristics of public services by eroding rents and decreasing transaction costs stemming from the public partner’s opportunism. Panel data regressions with country-specific effects, on a sample of 14 emerging countries for the period 1999–2014, confirm that the marginal effect of private infrastructure investments on GDP per capita depends on political stability.

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