Reviving Private Investment in Developing Countries: Major Themes

Public and Private Investment and Economic Development in Iraq (1970-2010)

“…There is a broadly held belief that public investment many not only encourage economic growth directly, but also indirectly via promoting private investment. Therefore, the nature of the relationship between these two forms of capital is still the subject of much controversy [6], [19], [20]. Accordingly, the relative influence of public and private investment has been the subject matter of much research, largely confirming that they perform a different function and influence productivity differently [6], [9], [21].…”

“…However, in countries that have large levels and a high quality of public infrastructure, the argument that public investment is complementary to private investment is less likely to hold. In this context, there could be greater advantages to the private sector if public expenditure looks improves the efficiency of infrastructure, as opposed to increasing its quantity [19], [27].…”

Financial Liberalization, Financial Restraint, and Entrepreneurial Development

“…A failed entrepreneur, on the other hand, goes back to agricultural sector at the beginning of the second period. 13 Note that the bank will prefer an untested entrepreneur to finance industrial activity over a failed one. So if at the initial equilibrium there is no financing for the new industrial entrepreneur, it means that the failed entrepreneurs are also redlined.…”

“…13 We assume that there exists a thresholdN b ≥ 1 such that ∀N b >N b , the entrepreneur finds it optimal to incur the cost and thus reveal its type to the outside banks. We assume that even in a perfectly competitive banking market, i.e., with large number of banks, the entrepreneur needs to incur a positive cost to reveal her type, and denote the lower bound on cost of switch for an entrepreneur byĈ.…”

“…3 Over the last few decades, under the auspices of IMF and World Bank sponsored structural adjustment programs, a large number of developing countries have pursued massive privatization. The growth experience of the private sector has, however, been largely disappointing; the private investment had been sluggish in a large number of countries for a long time following privatization (Serven and Solimano (1994), Chibber et. al., 1992).…”