Naoyuki YOSHINO Dean & CEO

Asian Development Band Institute (ADBI)Professor Emeritus, Keio University

March 8--2019 UNESCAP

Good Governance ofInfrastructure investment

1

2

Circulation of Savings into Domestic Investment

Domestic

Savings

Bank

Deposits

Mutual funds

Hometown Crowd

Funding

Insurance

Pension Funds

Loans Large

Corporates

SMEsStock

MarketGovernment

Expenditures

Infrastructure

Bond

Market

3

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

4

5

Pension Funds and InsuranceInstitutional 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 in Asian

6

7

User Charges are not enough

Increase in tax revenues

by spillover effects

user charges

1/14/2018

Direct Effect and Spill-over Effects

Output

Quality of Infrastructure is measured by

the spillover effects

Production Function Y=F( Kp, L, Kg )

Spillover effects

Direct Effect

Y= Output,

Kp= private capital,

L = labor

Kg = public capital (infrastructure)

Spillover Effects of

Infrastructure Investment

Railways

10Construction Operation period

The Southern Tagalog Arterial Road

(STAR Highway), Philippines, Manila

Tax Revenues in three citiesYoshino and Pontines (2015)

ADBI Discussion paper 549

Highspeed Rail Network

800 series, JR Kyushu 11

Usual Lines of JRNarrow Gauge 19,835 km

High speed railwayLines of JRStandard Gauge 2,765 km

-50000

0

50000

100000

150000

200000

250000

∆ 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

Estimation results (Connectivity increased tax revenues)

High speed railways

12

Increases in Tax Revenues

13

Railway Station in India

14

15

Hotel

Business

JR Farm

Promote Tourism

Restaurants at

Various Stations

Give incentives to operating companiesSOE Reform → Increase efficiency and rate of return

16

Long term bond (Floating rate)

Return

17

ҧ𝑡

Fixed

Interest

Rate

𝑡∗

0

𝑅

ത𝑅

𝑡 → 𝑁

∆Tax

Subsidy = 0.5*∆Tax

Control group

Treatment Group

α+β0

α

Time

Ou

tco

me

𝑶𝒖𝒕𝒄𝒐𝒎𝒆 = 𝜶 + 𝜷𝟎𝑫𝒊 +

𝒕=𝟏

𝑵

𝜷𝟎 ∗ 𝑫𝒊 ∗ 𝑻𝒕 + 𝜺𝒊,𝒕

∆Tax= ҧ𝒕 ∗ ∆Y

Concept of subsidy based on additional flow of tax revenue due to infrastructure

(no need for increase in tax rates)

TimeR

ailw

ay

19

Uzbekistan Railway(Yoshino and Abidhadjaev, 2017)

20

21

Financing for Start-ups

along Roads and Railways

(Hometown crowd funding)

23

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)

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

24

Dividends

Land Trust for Infrastructure Investment

LandOwners

Transfer of Management

Trust Bank

(Watch ProperUse Of

Land)

1, Reduction of Costs of Land Purchase2, Leasing contract3, future tax revenues can be used for repayment 4, Land owners keep their ownership

Railway

Company

Investors

④

New

Business

Increased

Employment

⑤

TaxIncrease

Spill Over Effects

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 bank26

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 costs3, How to maintain stable income stream ?

Utilize Spillover Tax Revenues

4, Infrastructure Oriented Developments

28

ReferencesYOSHINO 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 NeedsYoshino, 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.