Bridges over Troubled Waters? The Political Economy of Public-Private Partnerships in the Water Sector

Global concerns about water security and water scarcity are motivating local governments, investors, and international financial institutions to prioritize investments in the water sector. Over the past thirty years, public-private partnerships (PPPs) have been popular mechanisms for encouraging private sector investment and helping local governments overcome economic, political, and technical challenges associated with large infrastructure projects in the water, electricity, and transportation sectors. We argue that the political economy factors that affect the prevalence of PPPs in the water sector-which must serve broad populations of people at low cost-are different than other types of infrastructure projects. We use the World Bank's Private Participation in Infrastructure (PPI) database to explore factors that affect the likelihood that PPPs will be initiated in water relative to other sectors, and in water treatment relative to water utilities. We demonstrate that the likelihoods of PPPs in the water sector and water treatment are positively correlated with levels of output from industries that are water-intensive and pollution-intensive when the host country relies heavily on fossil fuels to generate electricity. Furthermore, when corruption levels are high, projects are more likely to be initiated in water than in other sectors, but those investments are more likely to be in water utilities than water treatment.

Automated summary

Global concerns about water security and scarcity have led local governments, investors, and international financial institutions to prioritize investments in the water sector. Over the past thirty years, public-private partnerships have been popular mechanisms for encouraging private sector investment in water infrastructure projects and overcoming economic, political, and technical challenges.