Project finance as a driver of economic growth in low-income countries

This paper, coauthored by Stefanie Kleimeier and Roald Versteeg, investigates the role of project finance as a driver of economic growth. The authors hypothesize that project finance is beneficial to the least developed economies as it is able to compensate for a lack of domestic financial development. The contractual structure unique to project finance leads to better investment management and governance. Investigating 90 countries from 1991 to 2005, the authors find indeed support for their hypothesis. Results show that project finance fosters economic growth and that its effect is strongest in low-income countries, where financial development and governance is weakest.