Macroeconomic Dimensions of Public-Private Partnerships

IMF Working Papers, March 24, 2016

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Macroeconomic Dimensions of Public-Private Partnerships

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Bibliographic details

• Authors: Edward F Buffie, Michele Andreolli, Grace B Li, Luis-Felipe Zanna
• Published: March 24, 2016
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484307700.001

Summary

• The paper compares public-private partnerships (P3s) and own-investment (OI) by the public sector using a dynamic general equilibrium model featuring private capital accumulation and involuntary unemployment with efficiency wages.
• Typical empirical features: P3s cost more but produce higher-quality infrastructure and have a better on-time completion record than OI.
• Because of these features, P3s are comparatively more effective in reducing:
  • underinvestment in private capital,
  • underinvestment in infrastructure,
  • unemployment, and
  • poverty.
• The asymmetric impact on macro externalities raises the social return in the P3 by "2 - 9 percentage points" relative to the social return to OI, depending on whether the externalities operate singly or in combination and on whether P3 enjoys an advantage in speed of construction.

Model and Methodology

• Framework: dynamic general equilibrium model with:
  • private capital accumulation, and
  • involuntary unemployment modeled via efficiency wages.
• Focus: macroeconomic repercussions of infrastructure provision via P3s versus public own-investment (OI).

Key Findings and Quantitative Results

• P3s typically:
  • incur higher costs than OI,
  • produce higher-quality infrastructure,
  • have a better on-time completion record.
• Macroeconomic outcomes where P3s outperform OI:
  • reduced underinvestment in private capital,
  • reduced underinvestment in infrastructure,
  • reduced unemployment,
  • reduced poverty.
• Impact on social return:
  • P3 raises the social return by "2 - 9 percentage points" relative to OI, conditional on:
  • which externalities are at play (singly or in combination), and
  • whether P3 enjoys an advantage in speed of construction.

Policy Implications

• Considering macroeconomic externalities is essential when evaluating P3s versus OI.
• Higher upfront costs of P3s can be offset by:
  • higher infrastructure quality,
  • faster completion,
  • stronger positive spillovers to private capital accumulation and labor markets.
• Assessment of P3 projects should account for their potential to reduce unemployment and poverty via macroeconomic channels, not just microeconomic cost comparisons.

Publication and Metadata

• Authors: Edward F Buffie, Michele Andreolli, Grace B Li, Luis-Felipe Zanna
• Publication date: March 24, 2016
• Series: IMF Working Papers
• Issue: 078
• Volume: 2016
• Pages: 49
• DOI: https://doi.org/10.5089/9781484307700.001
• Stock No: WPIEA2016078
• ISBN: 9781484307700
• ISSN: 1018-5941
• Subjects: Employment, Infrastructure, Labor, National accounts, Real wages, Unemployment, Unemployment rate, Wages
• Keywords: Africa, direct return, Employment, Infrastructure, infrastructure investment, involuntary unemployment, national budget, production function, Public-private Partnerships, Real wages, Underinvestment, Unemployment, Unemployment rate, wage curve, Wages, welfare gain, Welfare., WP

Source: Macroeconomic Dimensions of Public-Private Partnerships (IMF Working Paper No. 2016/078), March 24, 2016.

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