Political Stability, Government Quality and PPP Adoption in Developing Economies

• In Event: Making Use of the Market: Government Contracts and Outsourcing

Abstract

Public-private partnerships (PPPs) are increasingly regarded as an attractive vehicle for infrastructure and services delivery worldwide. In recent years, because of insufficient public financial resources (UN-Habitat, 2015) and being haunted by the unsustainable debt burden (UNCTAD, 2017), many developing economies have begun to adopt PPPs as a supplemental strategy to meet the rising public expectations of upgrading public infrastructure and services (Grimsey and Lewis 2004; Trebilcock and Rosenstock, 2015). Although existing researches have focused on the drivers of PPP adoption and the risk sharing arrangements of PPP contracts (Albalate et al., 2015; Wang et al., 2018), scholars have rarely considered the impact of political institutions on public financing of PPPs (Bertelli, 2018), particularly in the context of developing economies.

Developing economies face a lot of challenges when involve private investment into financing public facilities and services. The unstable political conditions in many developing countries could hamper the adoption of PPPs. Political stability could influence governments’ choice of PPPs model with different risk allocation structure since governments or politicians face shorter time horizons and they prefer short-run benefits in order to respond to impatient citizens (Auriol and Picard, 2013; Bertelli, 2018). Another essential challenge is that the low quality of government, inter alia, the weak revenue-raising capability, the lack of government capacity to protect private partners’ interest, and serious corruption problems, could restrict the development of PPPs. Theoretical and empirical researches have shown that institutional guarantee and government credibility are crucial for adoption of PPPs in transitional economies (Yang et al., 2013). However, scholars have not yet reached the consensus over how political stability and quality of government impact PPP adoption (Sharma, 2012; Percoco, 2014; Panayides et al., 2015).

Using data from 108 developing countries, this paper examines the relationship among political stability, quality of government and adoption of PPPs. The quality of government is measured by government capacity for raising tax, the quality of bureaucracy, and anti-corruption efforts. The adoption of PPPs refers to the size of PPP projects, the risk allocation of transaction, and whether PPP projects are successful implemented. The empirical results implicate that the quality of government is positively related to PPP adoption, and this relationship is moderated by the level of political stability.

This study contributes to the existing literature by extending the theoretical framework of quality of government and distributive politics in developing economies, and providing new empirical evidence.

Authors

• Pu Gong, Tsinghua University

• Wenjuan Song

• Dong Guo, School of Public Policy & Management, Tsinghua University

• Yongheng Yang