Policy risk, distance, and private participation projects in Latin America

Abstract

In this paper, we investigate how differences in policy risk levels between the home and the host country affect private participation projects. While traditionally distance has been associated with obstacles and challenges adversely affecting investments, a recent body of literature emphasizes the potential positive effects of distance. Drawing on a sample of 3971 projects from 1990 to 2013 in 21 Latin American host countries from 47 home countries, we find a strong positive effect for higher distance in absolute terms. However, our results also show that distance in nominal terms has no significant effect, pointing to a potentially confounding effect between positive and negative distance.