Project Finance and Economic Growth

Published in Review of Financial Economics
Sustainable Banking

Can project finance play promote economic growth? Project finance might indeed be 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 can leads to better investment management and governance. Investigating 90 countries from 1991 to 2005, the Stefanie Kleimeier and her co-author Roald Versteeg indeed find support for their hypothesis. Their 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.

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