Foreign partner choice in the public interest: Experience and risk in infrastructure public–private partnerships

Infrastructure public–private partnerships (PPPs) are collaborative agreements between a public sector entity and private sector firm that are designed to build and operate infrastructure projects. This study explores how public-sector entity experience and institutional concerns impact the choice of a local or foreign private sector partner. We find that the public entity’s prior infrastructure PPP experience has a U-shaped relationship with the likelihood of partnering with a foreign private sector firm. Meaning, we find that public entities with low and high levels of infrastructure PPP experience tend to partner with foreign private sector firms, whereas public entities with moderate levels of infrastructure PPP experience tend to partner with local private sector firms. Moreover, we find that financial risk associated with the infrastructure project moderates this relationship such that public entities with low or high levels of prior infrastructure PPP experience tend to partner with foreign private sector firms when the infrastructure project is highly leveraged. Our analysis of a global sample of project finance investments shows statistical support for our arguments. These findings regarding the determinants of PPP partner choice are significant given the massive investment in infrastructure development that is planned throughout the globe in the coming years.