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Financial additionality: role of multilateral development banks in private participation in infrastructure projects

Taguchi, Hiroyuki (2021): Financial additionality: role of multilateral development banks in private participation in infrastructure projects.

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Abstract

This paper aims to provide empirical evidence for demonstrating financial additionality of multilateral development banks (MDBs) in private participation in infrastructure (PPI) projects in terms of financing beyond what is available in the markets. To verify MDB financial additionality, this study examines whether the PPI projects with multilateral support have significantly larger investment commitments than the total average projects, by using the PPI database of the World Bank. The empirical analysis identifies MDB financial additionality in that the larger investment commitments of multilateral-supported projects beyond the average are confirmed in any income levels and regions in host countries, and any sectors and types in the projects. In particular, MDB financial additionality is valid even in low-income countries where private finance is still too premature to be available. In the host countries where their government effectiveness is in the poorest edge, however, MDB financial additionality loses its significance, thereby requiring the governance enhancement and capacity building in the host countries for its additionality to work.

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