Private participation in infrastructure grew significantly in developing countries during the 1990s, although a slowdown in investment activity has become evident since the Asian Crisis in 1997. Investment in infrastructure involves a significant volume of sunk costs on long-lived assets and risks associated with government's engagement in opportunistic holdup. In this context, macroeconomic, political and institutional instability constitute obstacles to a greater private sector envolvement in infraestructure projects. Using the Generalized Method of Moments methodology, this article presents empirical evidence that the flow of resources to infrastructure projects with private participation is greater in those coutries with a better institucional environment.
private investment; infrastructure; legal institutions
