• Privatisation of services

Privatisation of services

This paper uses a new dataset, "WATSAN," of private sector participation (PSP) projects for water and sanitation in developing countries to examine the determinants of the number of projects signed for each country between 1990 and 2004. The new dataset improves on existing sources, in particular in its coverage of projects with local investors, and provides adequate data for cross-country regression analysis.

The authors test several indicators of institutional quality and find that these are generally significant in determining the number of projects signed for each country. Measures of the protection of property rights and the quality of the bureaucracy emerge as the most important institutions that encourage PSP. Rule of law and the control of corruption are significant, albeit at a lower level, while the quality of contract law and political stability are not robustly significant.

This initial analysis of the new dataset has suggests a number of areas worthy of further investigation:

• institutions covered under broad terms such as "rule of law" and "government effectiveness" developed by the World Bank need to be further explained. More precise measures of the institutions relevant to private investment in infrastructure need to be identified
• more information on legal and regulatory structures for water and sanitation across countries is needed to study the relationship between these sector-specific institutions and the level of private investment in the sector
• the role of international financial institutions in shaping government preferences with regard to PSP could be investigated further
• it would be interesting to extend the analysis to include the exit decision of investors and the circumstances in which investors choose to terminate a water PSP contract.

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