Research

This paper sheds new light on a central puzzle in international finance: why does private capital remain scarce in emerging-market and developing-economy (EMDEs) infrastructure despite opportunities for attractive financial returns? Using proprietary data on more than 4,500 commercial infrastructure investments, I provide one of the first systematic investment-level comparisons of financial performance and downside risk across developed markets and EMDEs. I find limited evidence of a statistically significant difference in the proportion of investments outperforming public-market benchmarks. However, EMDE investments exhibit a substantially higher incidence of severe underperformance, alongside modestly lower aggregate returns. These findings point to elevated downside risk, rather than weak financial returns alone, as a key barrier to mobilizing private capital for EMDE infrastructure. Nonetheless, EMDE infrastructure offers promising investment opportunities: stronger economic growth, improvements in institutional quality, and greater international economic integration are associated with higher returns, while macro-financial crises are associated with weaker performance in the broader sample. Together, these findings highlight the importance of mitigating downside risks while strengthening conditions for long-term private investment in EMDE infrastructure. 

Despite the scarcity of infrastructure in emerging-market and developing economies (EMDEs), in the absence of readily accessible data on the historical performance of EMDE infrastructure as an asset class, private investors are reluctant to finance infrastructure projects in these countries. We begin to fill this information gap by computing the financial returns from equity investments in primarily unlisted firms in EMDEs made by the International Finance Corporation, the private-sector arm of the World Bank Group. The public market equivalent of 266 equity investments in core infrastructure by the IFC, with starting dates from 1961 to March 2020, was 1.17 using the S\&P 500 as a benchmark, and 1.26 using the MSCI Emerging Markets Index. On average, over the past six decades, equity stakes in emerging-market infrastructure backed by the IFC thus delivered higher returns than investments in portfolios of publicly listed equities. Data from the full sample of IFC equity investments reveal that, on average, a diversified portfolio of investments in infrastructure-related sectors, and indeed, in all sectors more generally, generated significant positive financial returns, albeit with variation across decades.

A billion people live more than two kilometers from an all-season road, the vast majority of whom reside in emerging-market and developing economies (EMDEs), where the absence of paved roads hinders growth and development. Consistent with this shortage, we estimate that the median social rate of return to installing an additional kilometer of two-lane highway in EMDEs is 55 percent—roughly eight times the social rate of return on private capital in the US. The size and precision of the estimates vary widely across countries. But the eightfold excess social return on roads is, nevertheless, five times larger than the excess financial return on stocks in developing countries that once catalyzed the creation of emerging market equity as an asset class. The absolute and relative magnitudes of these excess returns thus suggest the possibility of substantial unrealized gains from reallocating developed-country savings toward public capital formation in EMDEs. We document these facts using a production function approach to estimate each country’s marginal product of public capital (MPX). We then pair these estimates with country-specific, hedonic road construction prices (Px) from the Roads Cost Knowledge System to compute social rates of return (Rx). Because macro estimates face well-known identification and measurement challenges, we interpret our findings alongside complementary evidence on financial and micro-level returns.

More than 650 million people lacked access to electricity in 2023, the vast majority residing in emerging-market and developing economies (EMDEs), where inadequate generation capacity constrains productivity and economic development. This paper develops a climate-adjusted macroeconomic framework to estimate and compare the social rates of return to renewable and non-renewable electricity generation across EMDEs. Using a production-function approach, we estimate a common output elasticity of energy capital and combine it with country-level output, installed generation capacity, and technology-specific capital costs. We extend conventional production-function-based estimates by incorporating country-specific carbon emissions and the social cost of carbon to account for climate externalities, alongside capital depreciation. We estimate median social rates of return of 39.0\% for non-renewable energy and 44.7\% for renewable energy, with substantial heterogeneity across countries. Incorporating climate externalities alters country rankings and the relative economic attractiveness of different generation technologies. These findings suggest substantial unrealized social returns to electricity investment in EMDEs and highlight the importance of incorporating climate costs into international capital allocation and energy investment decisions. Given the identification and measurement challenges inherent in macroeconomic estimates, we interpret these results alongside financial and micro-level evidence.

This paper develops a stock-flow consistent model to analyse the amplification and transmission of shocks from non-bank financial intermediaries to the broader UK economy. Motivated by the growth of the life insurance sector and the transfer of risks to it from pension funds, a key model innovation is the disaggregation of these two sectors, and the explicit modelling of insurance asset allocation, including corporate bond demand. The model identifies these sectors’ risk origins and quantifies shock transmission to both financial and non-financial sectors. By tracing flows into and out of insurance and pension funds, the model measures the non-bank sectors’ potential to propagate systemic risks, and its broader economic impact. We use the model to examine (1) the potential impacts of the 2022 UK gilt crisis without Central Bank intervention, (2) changes in insurance capital requirements, (3) the implications of increased corporate debt issuance to insurers, (4) and risk to financial stability arising from waves of corporate debt distress, showing that it is able to capture key systemic risk transmission mechanisms.

This paper provides strong evidence of a common global latent risk (frailty) factor that impacts corporate debt distress risk worldwide by employing a dataset with international coverage of corporate default events. The global latent risk factor identifies substantial common variation among separately estimated dynamic latent risk (frailty) factors of firms at the country level. Estimations of country frailty factors control for observable firm fundamentals capturing systemic risk and omitted macroeconomic factors. Commonalities among country frailty factors highlight global systemic risk. Observable global factors and financing variables can only explain up to 25% of global frailty, indicating the vulnerability of global corporate credit markets to common latent systemic risk. The findings also detect cross-country corporate default risk spillovers, underscoring the international interconnectedness of corporate distress risk.

This paper evaluates the severity of international corporate default clustering. By employing a dataset that contains a global coverage of corporate default events, I show that corporate default events display an excess degree of clustering in four key regions worldwide: U.S., Europe, Asia Pacific, and Emerging Markets. Specifically, I show that systemic risk drives the clustering of corporate default events, which cannot be explained by firm fundamentals variables and key systematic variables identified in corporate default risk literature. After controlling for the impact of domestic corporate default contagion within a region, I show that corporate default clustering is driven due to a new source of default clustering: International corporate default contagion.

Long-term private investments are exposed to multiple sources of risk, including political and regulatory uncertainty, inflation, currency risk, and macro-financial shocks, particularly in emerging-market and developing economies (EMDEs). This paper examines whether contractual and financial risk-mitigation mechanisms are associated with greater resilience to adverse shocks. Using a proprietary dataset of private-market investments in infrastructure and other real assets, I combine project-level financial performance with newly collected information on public-private partnership structures, political-risk protection and guarantees, currency-hedging arrangements, and other risk-sharing mechanisms. I examine whether investments employing these mechanisms realize higher returns or lower downside risk, particularly when relevant macroeconomic or political shocks occur during their investment periods. Preliminary evidence suggests that investments with PPP structures and currency-hedging arrangements experience smaller realized losses during periods of adverse macro-financial stress. The paper provides new evidence on how contractual design and financial risk mitigation shape the risk-return profile of long-term private investment and informs efforts to mobilize private capital, particularly in EMDEs. 

Meeting global climate objectives requires substantial private investment in renewable energy and other climate-related assets, yet private capital remains well below estimated financing needs, particularly in emerging-market and developing economies. This paper examines whether the financial performance of climate investments helps explain this financing gap. Using a proprietary dataset of private-market investments in infrastructure and other real assets, I compare the realized financial returns and downside risk of climate-related investments with otherwise comparable non-climate investments across countries and over time. I examine whether climate investments deliver competitive financial returns, how their performance varies across technologies and markets, and whether macroeconomic and institutional conditions shape their risk-return profile. The paper provides new evidence on whether investments that generate climate benefits can also satisfy the financial objectives of long-term private investors, helping clarify the conditions under which private capital can contribute to closing the global climate financing gap. 

Can private financing substitute for government expenditure in providing essential infrastructure, or does its effectiveness depend on complementary state capacity? This paper examines this question using historical evidence from Qing Dynasty China, focusing on irrigation and water-control infrastructure during the eighteenth and nineteenth centuries.

The study seeks to construct an original project-level historical dataset by systematically collecting and cross-referencing information from local gazetteers, Qing administrative archives, merchant-guild records, and other historical sources. The dataset aims to document public and private financing arrangements, government involvement, maintenance responsibilities, and subsequent infrastructure performance. The analysis investigates whether private contributions substitute for public expenditure and whether the sustainability of privately financed infrastructure depends on complementary government oversight and clearly defined maintenance responsibilities.

Existing historical accounts provide suggestive evidence that private and local contributions helped finance infrastructure under fiscal constraints, while government institutions continued to play important roles in coordination, oversight, and dispute resolution. These observations motivate the hypothesis that private financing may substitute for public funding while remaining complementary to state capacity in sustaining infrastructure provision. By systematically examining historical arrangements between governments, merchants, and local communities, the research aims to provide new evidence on the institutional foundations of sustainable public-private cooperation, offering insights for the design of modern public-private partnerships (PPPs), particularly in developing economies facing fiscal constraints.