Variable Description

This section gives details of both the dependent and explanatory variables used in this research. Table4.14outlines all the variables and theira prioriexpected signs.

4.3.2.1 Dependent Variable - Countries’ Attractiveness

As mentioned earlier, the main variable used in this study to measure countries’ attractiveness for PPP is the number of private investors (referred to as ‘Sponsors’ in the PPI dataset) that are actually engaged in the PPP project arrangement. This

variable attempts to capture the people or institutions behind the investments rather than the value of the investment. It helps to show how private individuals or insti- tutions could collaborate amongst themselves and with the public sector for public infrastructure development. For example, a total of four private institutions came together to undertake the Yangpu Power Project in Hainan Island, China. These institutions came from three different continents, but find china attractive for PPPs (Kumagai Gumi Co. Ltd and Maeda Corporation both from Japan; Siemens AG from Germany and; Ringo Trading Ltd from the United States of America).

To derive this dependent variable, a count is made of every investor that partakes in every project as shown in the ‘Sponsors’ field in the dataset. For example, a particular project might have three sponsors while another of equivalent US dollar value might have only one sponsor, in which case, the former is counted as three while the latter as one. Furthermore, for projects that do not specify the the names of the sponsors, but rather the word ‘others’ is used in theSponsorfield, a count of one is given for ease of comparison. After counting the number of sponsors in each project, we then group them based on the respective projects financial closure year to create a panel of observations.

As a way of providing more options for policymakers, two other variables were used to measure countries’ attractiveness, the number of projects and the US dollar investments. For the former, a count is made of all the projects that reached financial closure in the same year, while the latter adds all the US dollar investment made under each project, expressed as a percent of GDP.

4.3.3

Substantive Predictors

As outlined in Section4.2, the study identified four main channels through which countries gain their attractiveness for PPPs including: (i) macroeconomic and mar- ket channel; (ii) government constrain channel; (iii) regulatory and governance

channel; and (iv) experience channel. This section describes the variables that con- stitutes these channels.

Macroeconomic and Market Channel

This channel consists of the following variables:

(i) Price Stability - Like most studies, including Bernoth and Colavecchio, (2014), this variable is measured by the inflation rate, which is the annual percentage change in a country’s consumer price index (CPI).

(ii) Exchange Rate Stability - in this research, exchange rate is defined as the rate at which a country’s currency is exchanged for one unit of the United State dollar. This means that an increase in the exchange rate reflects a deprecia- tion/devaluation of the country’s currency relative to the US dollar, while an increase represents appreciation/revaluation. In line with Clark et al., (2004) and other authors, exchange rate stability/volatility is measured by the stan- dard deviation of the percentage changes in the exchange rate between con- secutive years.

(iii) Exchange Rate Availability - this variable is measured by the country’s inter- national reserves in months of imports.

(iv) Market Size and Potential Effective Demand/Purchasing Power - Like Ham- mami et al., (2006), market size is measured by the country’s population, while potential effective demand is captured by real GDP per capita.

Government Constraints Channel

This channel consists of the following variables:

(i) Public Debt Burden - in this research the public debt burden is measured in terms of solvency and liquidity consistent with the World Bank’s approach. For solvency, the research utilises the public and publicly guaranteed external debt stock (otherwise referred to as public and publicly guaranteed disbursed and outstanding debt) relative to exports, while for liquidity, two indicators

were used, public debt service to exports of goods and services, and public debt service to domestic budget revenue.

(ii) Supplemental Revenue Source - to account for supplementary revenue to the government, the study uses the variable, natural resource rent as percent of GDP.

Regulatory and Governance Channel7

This channel consists of the following variables:

(i) Rule of Law - this variable is an index that attempts to capture perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, and the courts. This indicator allocates values to countries on a scale of 100 with high values representing better rule of law.

(ii) Regulatory Quality - this is an index which captures the perceptions of the ability of the government to formulate and implement sound policies and reg- ulations that permit and promote private sector development. Like rule of law, this index allots values to countries on a scale of 100 with high values repre- senting better regulatory quality.

(iii) Time Required to enforce Contracts - this variable measures the number of days required to enforce contracts and to implement sound policies and regu- lations that permit and promote private sector development.

(iv) Government Effectiveness - this variable captures among other things, the perceptions of the quality of public services and the credibility of the gov- ernment’s commitment to its policies. Countries are allocated higher values up to a maximum of 100 as the perception of their government effectiveness improves.

7_{For further explanation on the variables that constitutes the channel seeWorldwide Governance} Indicators 2015

(v) Control of Corruption – this variable captures among other things, percep- tions of the extent to which public power is exercised for private gain. Under this index, countries are given higher values up to a maximum of 100 as the perception on control of corruption improves.

(vi) Political Stability and Absence of Violence - this variable measures percep- tions of the likelihood of political instability and/or politically motivated vio- lence, including terrorism. This variable allocates higher values to more stable countries.

Experience Channel

This channel consists of only one variable, countries’ experience, which is mea- sured by cumulating the number of projects implemented in a particular country on an annual basis. The more PPP projects executed by a country, the more experience the country is assumed to have in dealing with matters relating to the successful implementation of PPPs.