Financing Infrastructure in Developing Countries

This article develops a theoretical framework to analyze options for financing infrastructurein developing countries. We build a basic model that gives motivations for usinga combination of public finance, private debt and private equity. The model is thenextended in a number of ways to examine a variety of factors that are important fordeveloping countries when considering financing choices. We focus in particular on keyinstitutional weaknesses that are often important for infrastructure investment. Overall,we show that such weaknesses can be key in determining financing choices, but that theydo not all push in the same direction. Financing schemes must therefore be adapted toconsider the institutional limitations that are most pertinent in any given context.