The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian Development

Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee
the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not
necessarily be consistent with ADB official terms.

Private Finance into Infrastructure

by Use of Spillover effects

Naoyuki YOSHINO
Dean & CEO
Asian Development Bank Institute (ADBI)
Professor Emeritus, Keio University
February 27--2019

1
Land Trust for Infrastructure Investment
Spill Over Effects
Trust
Bank Investors Tax
(Watch Increase
Transfer of Proper ⑤
Management Use Railway
Land Of New
Owners Dividends Land)
Company
④ Business
Increased
Employment

1, Reduction of Costs of Land Purchase

2, Leasing contract
3, future tax revenues can be used for repayment
4, Land owners keep their ownership
 Benefits of Land Trust
1, Annual Income rather than one time
receipt of huge income
2, Even if Land owners are not in the country
trust bank keeps the rent
3, Smooth construction
4, Need Trust Laws
5, Give Trust license to bank
by the Central Bank
No need to establish trust bank
3
 Circulation of Savings into Domestic Investment

Domestic
Loans Large
Savings
Corporates
Bank
Deposits
Stock SMEs
Mutual funds Market
Government
Expenditures
Hometown Crowd Bond
Funding Market

Insurance Infrastructure
Pension Funds
4
 Growing Savings Ratio in Asian Countries
(1) Savings  Bank Loans  SME  Economic Growth  Deposits
(2) Increase of domestic Savings is Important in Asian Growth
(3) 1997 Financial Crisis of Asia  Lack of Asian domestic Savings
 relied on foreign capital inflows

5
6
7
 Pension Funds and Insurance
Institutional Investors
1, Increase Long term Savings (Insurance)
2, Pension Funds to cope with aging population
3, Asset Management of Insurance and Pension
Funds
 Invest into Overseas’ Bond
 Put their assets into bank deposits
(Myanmar, Cambodia)
4, Infrastructures are needed
8
 Various Risks associated with Infrastructure
1, Risks:
(i) political risk
(International organization ADB, WB)
(ii) construction risk,
(iii) Natural Disaster
(iv) operation and maintenance risks,
(v) exchange rate risk (overseas’ investors)
2, User charges cannot be set too high
User charges <<< Total costs
3, How to maintain stable income stream ?
Utilize Spillover Tax Revenues
4, Infrastructure Oriented Developments
User Charges are not enough

Increase in tax revenues

by spillover effects

user charges

1/14/2018 10
Direct Effect and Spill-over Effects
Production Function Y=F( Kp, L, Kg )
Spillover effects
Output
Direct Effect
Y= Output, Quality of Infrastructure is
Kp= private capital, measured by
L = labor the spillover effects

Kg = public capital (infrastructure)

 Railways

Spillover Effects
of
Infrastructure
Investment
The Southern Tagalog Arterial Road
(STAR Highway), Philippines, Manila
Tax Revenues in three cities
Yoshino and Pontines (2015)
ADBI Discussion paper 549

Construction 13 Operation period

14
 Highspeed Rail Network

High speed railway

Lines of JR
Standard Gauge
2,765 km
Usual Lines of JR
Narrow Gauge 19,835 km

15
800 series, JR Kyushu
Estimation results (Connectivity increased tax revenues)
High speed railways
250000

200000

150000

100000

50000

-50000
∆ Total Tax ∆ Personal Income Tax ∆ Corporate Tax ∆ Other Taxes
Construction [1991-2003] 94895 7447 3435 84012
Operation 1 [2004-2010] 75131 -23843 -6883 105858
Operation 2 [2011-2013] 194790 48690 80998 65102
16
Increases in Tax Revenues

17
Metro Station in Delhi

18
Railway Station in India

19
 Hotel
Business

Promote Tourism

Restaurants at
Various Stations
JR Farm 20
Give incentives to operating companies
SOE Reform  Increase efficiency and rate of return

21
 Long term bond (Floating rate)
𝑡∗ Return

𝑅ത

Fixed
Interest
Rate

0
𝑡→𝑁 𝑅
𝑡ҧ

22
Concept of subsidy based on additional flow
of tax revenue due to infrastructure
Outcome Treatment Group

∆Tax=𝒕ҧ ∗ ∆Y ∆Tax

(no need for increase in tax rates)

Subsidy = 0.5*∆Tax

α+β0 Control group

Time
𝑵

𝑶𝒖𝒕𝒄𝒐𝒎𝒆 = 𝜶 + 𝜷𝟎 𝑫𝒊 + ෍ 𝜷𝟎 ∗ 𝑫𝒊 ∗ 𝑻𝒕 + 𝜺𝒊,𝒕
𝒕=𝟏
 Uzbekistan Railway
(Yoshino and Abidhadjaev, 2017)

Railway Time

24
25
26
 Financing for Start-ups
along Roads and Railways
(Hometown crowd funding)
28
 Hakata Station Bakery Shop
Station Building Business

29
Kokura Station Building Kagoshima Station Building
Different Classes of Infrastructure Assets

Bank Loans Safer Assets

Insurance Different
Pension Funds Infrastructure
Hometown Trust Classes
Revenue Bond
Equity Riskier Assets

30
Infrastructure & Education
Yoshino and Umid Abidhadjaev (2016)

Dependent variable: log difference GDP per capita in 1991-2010

Regression number REG.1 REG.2 REG.3

Variables Coef. Coef. Coef.
lnY_1991 -0.06 -0.14 -0.14
(-0.54) (-1.35) (-1.38)
ln(n+g+d) -3.09 -5.75 -4.36
(-0.59) (-1.23) (-0.77)
ln(Kg) 0.23 0.31 0.53
(1.17) (2.00) (3.30)
ln(Sec) 0.00
(0.46)
ln(Kg)xln(Sec) 0.20
(1.59)
ln(Uni) 0.21
(2.07)
ln(Kg)xln(Uni) 0.24
(2.76)
Constant -0.28 0.56 0.48
(-0.33) (0.69) (0.57)
31
Number of observations 44.00 44.00 44.00
R-squared 0.21 0.30 0.30
F-statistic 2.62 4.14 3.29
 References
YOSHINO Naoyuki, and Farhad Taghizadeh–Hesary, (2019)
“Modelling the social funding and spill-over tax for Addressing the
green energy financing gap”, Economic Modelling, 2019, forthcoming
Asian Development Bank (2017) Meeting Asia’s Infrastructure Needs
Yoshino, Naoyuki, and Umid Abidhadjaev. 2017a. “An Impact
Evaluation of Investment in Infrastructure: The Case of a Railway
Connection in Uzbekistan.” Journal of Asian Economics 49: 1–11.
Yoshino, Naoyuki, and Umid Abidhadjaev. 2017b. “Impact of
Infrastructure on Tax Revenue: Case Study of High-Speed Train in
Japan. Journal of Infrastructure, Policy and Development 1 (2): 129–
148.
Yoshino, Naoyuki, and Masaki Nakahigashi. 2004. “The Role of
Infrastructure in Economic Development.” ICFAI Journal of
Managerial Economics 2: 7–24.
Yoshino, Naoyuki, Masaki Nakahigashi, and Victor Pontines. 2017.
“Attract Private Financing to Infrastructure Investment by Injection
of Spillover Tax Revenues.” Nomura Journal of Asian Capital Market
1 (2): 4–9.
Thank you so much for your attention

Naoyuki YOSHINO
Dean & CEO
Asian Development Bank Institute (ADBI)
yoshino@econ.keio.ac.jp