The Political Economy of Borrowing for Infrastructure Development

• In Event: Politics of Sovereign Borrowing

Abstract

How do host governments in the Global South choose between which lender to borrow from to finance domestic infrastructure development? The existing literature studies lending decisions primarily from the perspective of lenders and overlooks the fact that host countries are not passive recipients but rather have choice when selecting their creditors. I develop a theory of infrastructure borrowing based on the survival incentives of political leaders in the Global South. I argue that self-interest elites are more willing to tolerate long-term borrowing costs when loans finance projects that provide short-term electoral effects. By analyzing infrastructure development finance from China and the World Bank, I show that due to China’s comparative advantages in speed and scale, incumbent leaders are more likely to accept Chinese financing for projects in “visible” sectors and that these projects are more likely to finish leading up to elections. This theory helps explain sectoral and temporal variation in borrowing portfolios, highlights different electoral cycles to Chinese and World Bank loans, and has implications for development policies in the Global South.

Author

• Alicia R. Chen, Stanford University