Spillover Effects of Infrastructure Investment
andSustainable Growth in Asia
NOMURA Foundation- Asian Capital Markets
Roundtable

Naoyuki YOSHINO
Professor Emeritus (Economics) Keio University
Former Dean/CEO Asian Development Bank InstituteJAPANyoshino@econ.keio.ac.jp1

Source: World Bank

2

Realizing The
Potential ofPublic Private
Partnerships
to Advance
Asia’sInfrastructure
Development
Akash Deep
Jungwook
Kim
Minsoo Lee
ADB (2019)3

4

Yoshino, N., S. Lakhia, and J. T. Yap. (2021). “Financing Sustainable Infrastructure Investment in

ASEAN+3”. in Guinigundo, D., Kawai, M., Park, C. Y., Rajan, R. S. Redefining Strategic Routes to Financial
Resilience in ASEAN+3. Manila, Philippines, ADB.

5

Spillover Effects ofWater Supply and Transport Infrastructure

Increase of Spillover Tax Ｒｅｖｅｎｕｅｓ

New Housing & Offices

SchoolManufacturing
7

Research Question
How does Infrastructure development affect tax revenues?
Spillover Effects of digital infrastructure
e-businesse-commerce
remote education

Employment
New Businesses

New Residents

Spillover effect Increase in Tax revenues
8

9

10

11

12

Economic Effects of Digital Infrastructure13

Important Role of ICT (Information andCommunication Technology) during the Pandemic• Remote work
During the pandemic, ICT
is becoming more
important  increase in
the share of workers
teleworking.

Digital inequality

poses challenges for someworkers to telework. Eg: inthe survey by NRI, the resultsfor China and South Korea are
only representative for urban
population due to poorconnectivity in rural areas.

In Ono, H. and Mori, T., (2021)

Important Role of E-Commerce
during the Pandemic• Share of e-commerce in global retail trade went up from
14% in 2019 to 17% in 2020 (UNCTAD 2021).

Source: Google, Temasek, and Bain&Co (2021)

Online Education during the Pandemic

Many countries rely on multiple modes of remote learning. Many relied on the internet andmobile phones.

SouthAsia

NorthAmerica

East Asia andPacificSource: John Hopkins University, World Bank, and Unicef (2021)

Estimation Strategy• Fixed Effects model• 𝜟𝑻𝒂𝒙 𝒑𝒆𝒓 𝒄𝒂𝒑𝒊𝒕𝒂𝒊𝒕 =∝𝟎 +∝𝟏 𝜟𝑺𝒖𝒃𝒔𝒄𝒓𝒊𝒃𝒆𝒓𝒔 𝒑𝒆𝒓 𝒄𝒂𝒑𝒊𝒕𝒂𝒊𝒕• +∝𝟐 𝜟𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒆 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 𝒑𝒆𝒓 𝒄𝒂𝒑𝒊𝒕𝒂𝒊𝒕• +∝𝟑 𝜟𝑷𝒆𝒓𝒔𝒐𝒏𝒔 𝒆𝒏𝒈𝒂𝒈𝒆𝒅 𝒊𝒏 𝒊𝒏𝒅𝒖𝒔𝒕𝒓𝒚𝒊𝒕 +𝒗𝒊 + 𝜹𝒕 + 𝒖𝒊𝒕• 2SLS

Actual and Predicted Values of GSM
Subscribers and Total State Tax RevenueΔ GSM

Δ TaxFirst stage:• 𝜟𝑮𝑫𝑷 𝒑𝒆𝒓 𝒄𝒂𝒑𝒊𝒕𝒂𝒊𝒕 =𝜷𝟎 + 𝜷𝟏 𝜟𝑺𝒖𝒃𝒔𝒄𝒓𝒊𝒃𝒆𝒓𝒔 𝒑𝒆𝒓 𝒄𝒂𝒑𝒊𝒕𝒂𝒊𝒕 +𝜷𝟐 𝜟𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒗𝒆 𝑪𝒂𝒑𝒊𝒕𝒂𝒍 𝒑𝒆𝒓 𝒄𝒂𝒑𝒊𝒕𝒂𝒊𝒕 +𝜷𝟑 𝜟𝑷𝒆𝒓𝒔𝒐𝒏𝒔 𝒆𝒏𝒈𝒂𝒈𝒆𝒅 𝒊𝒏 𝒊𝒏𝒅𝒖𝒔𝒕𝒓𝒚𝒊𝒕 +𝒗𝒊 + 𝜹𝒕 + 𝒖𝒊𝒕

Second stage:
𝜟𝑻𝒂𝒙 𝒑𝒆𝒓 𝒄𝒂𝒑𝒊𝒕𝒂𝒊𝒕 =∝𝟎 +∝𝟏 𝜟𝑮𝑫𝑷 𝒑𝒆𝒓 𝒄𝒂𝒑𝒊𝒕𝒂𝒊𝒕 + 𝒗𝒊 + 𝜹𝒕 + 𝒖𝒊𝒕

Policy Implications• One way to ensure that private sector remains attracted to infrastructure development is to provide a steadystream of income for them. We argue that that could be achieved by sharing the spillover effects of ICT
infrastructure on taxes obtained by the government with the investors/operators of the infrastructure• The amount of tax revenues to be shared by the gov’t with the investors can be calculated using trans log
production function (Yoshino et. al. 2019)

Based on ourestimation, if 50 %of increased tax
revenues werereturned to mobile
operators, theIncreased by
14.2%

rate of return
will rise about
14.2%
Source: Yoshino et. al. (2019)

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20

21

22

23

Environmental Issues
associated with Infrastructure
Y = F (L KP Kg )(1)
Traditional Production Function
F (Y, CO2) = F (L KP Kg ) (2)
Y= Output CO2 emission
L= labor
KP= Private capital,Kg =infrastructure24Thank you for your attention
Naoyuki YOSHINO
yoshino@econ.keio.ac.jp
Professor Emeritus of Keio University

25References• Yoshino, N., K. E. Seetharam, S. Miyazawa, and K. Xu. 2019. “Innovative
Measures of Infrastructure Investments: Illustrating Land Trust Scheme andSpillover Effect”. ADBI Working Paper Series, No. 1053. December• Yoshino, N., D. Azhgaliyeva., and R. Mishra. 2020. “Financing infrastructure using
floating-interest-rate infrastructure bond”. Journal of Infrastructure, Policy andDevelopment. Vol. 4(2)
• Yoshino, N., K. Xu., and K. E. Seetharam. 2020. “Land Trust Scheme and theSpillover Effects of Infrastructure Investment” in Hayashi, Y., K. E. Seetharam, S.
Bharule. Handbook on High-Speed Rail and Quality of Life. Manila, Philippines,ADB.
• Yoshino, N., S. Lakhia, and J. T. Yap. 2021. “Financing Sustainable Infrastructure
Investment in ASEAN+3”. in Guinigundo, D., Kawai, M., Park, C. Y., Rajan, R. S.
Redefining Strategic Routes to Financial Resilience in ASEAN+3. Manila,Philippines, ADB.
• Yoshino, Naoyuki. Tifani Siregar, Dina Azhgaliyeva and K.E. SeethaRam. 2022.
“Spillover Effects of Digital Infrastructure and Financing”. Journal ofInfrastructure, Policy and Management, ISSN: 2599-1086, e-ISSN: 2656-1778 Vol.
5 No.1.

Ｆｅｂｒｕａｒｙ 2, 2023

The way to induce private financing
into Green Investments and Green BondYOSHINO Naoyuki
Professor Emeritus, Keio University, Japan
Former Dean & CEO, Asian Development Bank Institute(ADBI)
yoshino@econ.keio.ac.jp1

Green energy projects are categorized into twogroups based on scale:A) large projects: Hydro-powerB) Community type green energy projects(Hometown Crowd Funds)

Large projects can be financed by i) insurance and pension funds, that havelong-term Financing.

long-term Projects (10-20 years),Bank loans (1-5 years).
1/14/2018

Hydropower plant2

Injection of Increased tax revenues from the spillover
effect into energy projects in order to increase the rate of
return for private investors
Spill over effects of electricity supply
Non-affected
regionNon-affected
regionSpillover Effect and increase of sales& property tax revenue
Source: Yoshino and Taghizadeh-Hesary (2017)

Possible Solutions
by use of community funds

For Risky businesses

1/14/2018

Hometown Investment Trust Funds----------------------------------A Stable Way to Supply Risk Capital
Yoshino, Naoyuki; Kaji Sahoko (Eds.), 2013,

4

Bank-based SME financing andfinancing to riskier borrowers
1. Bank Loans to relatively safer borrower
2. Hometown Investment Trust Funds/

E-Finance, Internet financing

Saferborrowers
Riskier
Borrowers

BankingBanking
Account
Account
Hometown
Investment

TrustFunds

Depositors

Investors
5

Financing Scheme for Renewable Energy
Projects Using HITs and Carbon Tax

Injection of Spillover Tax revenues
1/14/2018

HIT = Hometown Investment Trust Fund.
Source: Authors.

6

Current ESG investment: distorts asset allocation
1, Traditional asset allocation :two parameter approach(i) Rate of return (R),(ii) Risks (σ2)
2, ESG component is added for the asset allocation(iii) ESG multi-factor model
3, ESG criteria is different from one rating agency toanother4, Each investor changes asset allocation based onspecific criteria of ESG given by rating agency
7

Portfolio Allocation including ESG scoresOptimal Portfolio Allocation taking into consideration of ESG scores

The evaluation methodologies and criteria for ESG
scores vary from one evaluating organization to another.
For example, (1) some agency uses its own criteria toevaluate a company's ESG efforts, (2) some agency
assigns a score based on the degree of disclosure, (3)some agency uses a score based on whether or not thecompany has an ESG policy, (4) some agency uses ascore based on actual ESG activities such as carbon
dioxide reduction by judging from performance, and soon (Table 1). It also raises issues whether ESG scores
actually reflect ESG activities and outcomes bycompanies (Chatterji et al. 2009, Drempetic et al. 2019).
10Table 1: ESG s core s and e val uation me thodologie s provide d by the major ESG rating
age ncie s
ESG Scores

Overview of Rating M ethodology

Bloomberg ESG Disclosure Scores

Evaluating by degree of ESG disclosure

FTSE Russell’s ESG Ratings

Evaluating by ESG risks based on disclosure and commitment to p olicy
develop ment and imp rovement

ISS Quality Score

Evaluating governance (board comp osition, shareholder and takeover
defenses, comp ensation and remuneration, and audit and riskmonitoring)

M SCI ESG Ratings

Evaluating by 37 key ESG issues

RobecoSAM Corp orate Sustainability
Assessment

Evaluating by economy , environment and society . Governance isincluded in the economy.

Sustainaly tics ’ ESG Risk Ratings

Evaluating by ESG measures, disclosures, and the level of the p roblem

Thomson Reuters ESG Scores

Evaluating by 10 categories (environment (resource use, emissions, andinnovation), society (emp loy ees, human rights, local communities, andp roduct resp onsibility ), and governance (management, shareholders, andCSR strategy ).

Source: Bloomberg, ESG rating organization websites , and Yuy ama et al. (2020).

11Table 3: Empirical Application of the theory
ESG Score

No Rating

RobecoSAM

Sustainalytics

Bloomberg

ESG score of company A-

8.6

9.6

2.9

ESG score of company B-

1.8

1.3

3.9

Value of α

0.57

0.71

0.74

0.54

(Source) Based on each company's 2019 actual stock returns, standard deviation, covariance, and ESG score.
Author's calculations based on equation (12) from Bloomberg data The allocation of assets between A and B changes which ESG rating agencies’ ESG score is used forthe portfolio allocation.
 The higher ESG score value is the higher α, and thus the higher the investment allocation. For
example, since Sustainalytics is the highest ESG score for Company A, investors following this rating
will have the highest allocation to Company A.
 On the other hand, the Bloomberg score is lower for Company A than for Company B, resulting in asmaller investment allocation.
 If we do not take into account the ESG score, the investment allocation to Company A is 0.57
12

U=R-βσ２+γ(ESG)ESG Score
𝑬𝑺𝑮𝑫

SDG
ESG
Greenness

𝑬𝑺𝑮𝑩
𝑬𝑺𝑮𝑪
𝑬𝑺𝑮𝑨13

Optimal portfolio allocation can beachieved by taxing waste products
1, By taxing wastes such as CO2, NOX,
Plastics etc. by identical international tax
rate, the investors can only look for “aftertax rate of return” and “risks” as they wereconventionally focused on.
2, Firm level - International taxation willlead to optimal asset allocation and achievesustainable growth14

Greenness Adjusted
GHG Taxation

Portfolio
Optimization
taking into
account ofGHG TaxSatellite photo can measure
the amount of CO2 emission.
All the schools
at Yokohama Citymeasure CO2 Emission

17

ESG Investment and Stock Price

18

International Capital Market Association19

20

GreenBondandOptimal
Portfolio
Allocation

Green Central Banking

51

26

53

28

SME Credit Data Analysis
Naoyuki YOSHINO
Professor Emeritus, Keio University, Japan
former Dean/CEO ADBI
yoshino@econ.keio.ac.jp12

Barriers for SMEs in Accessing Financial Institutions,Collateral, Higher interest rate, long term process

Source: ADB–OECD study on enhancing financial accessibility for SMEs: Lessons from recent crises.
Mandaluyong City, Philippines: Asian Development Bank, 20133

Borrower, Lender and Market

Borrower
SMEs
Individuals

MarketLenderBanks
MicroCredit

Information Asymmetry
Especially SME market

4Four Accounts by SMEs in Japan
1, Account to show Bankers
2, Account to show tax authority
3, Account to show to his wife
4, His own account56

SME Data base (CRD Data base)Credit Guarantee
Corporations

SMEs(14.4milliondata)
Defaults(1.7milliondata)(Collect Data of SMEs)
52

1, Government Support
2, Reliability
3, Security of Information

Financial
Institutions
200
Regional Banks
Credit Associations
Credit Cooperatives
Government Banks
Central BankCRD
7

CRD Database
1, Sector, Location, Year of Establishment
2, Real estates, Age of Owner
3, Successor or not
4, Financial Data(i) Cash & Deposits,(ii) Liquidity Assets and Fixed Assets(iii) Total Assets(iv) Short term and long term borrowings(v) Sales, Profits
8

Chapter 59

Examined Variable

10

11

Credit Rating of SMEs using Asian Data(i) Sales(ii) Assets(iii) Liquidity (Cash)(iv) Total Debt

12

Cluster analysis:
the average linkage method
Dendogram Using Average Linkage

1314

Credit Rating for SMEs
by Use of SME Database
1, Credit Rating is only applicable to large
companies
2, Credit Rating for SMEs based on SME Data
3, Three ranking of SMEs (Asian country)
Five ranking of SMEs (Japan’s case)4, SME data can produce default risk ratio
5, Risk based Interest rate

15

Financial Education for SMEs
Education Program and Textbooks
1, Financial Planners Association
Individual Borrowing
2, Central Bank of Japan
Text books, Educate School teachersRegional Education Program (MANEBITA)
3, Various Financial Associations
Bankers Association, Stock Exchange

16

SMEs’ Debt Overhand17

Start up businesses and farmers
Hometown Investment Trust Funds(Springer)--------------------------------------------------A Stable Way to Supply Risk Capital

Yoshino, Naoyuki; Kaji Sahoko (Eds.) 2013,

Japan, Cambodia
Vietnam, Peru
Access to Digital Technology, Internet(1) Purchasing Type of Hometown Trust(2) Investment Type of Hometown Trust
18

Internet On-line trade
Start upsFarmers
Innovators

InternetCompany

Consumers

Advertise

FSA：Registration
19

Financing for Start-ups along Railway(Hometown crowd funding)21

References

Yoshino N. Kaji, S. (2013) Hometown Investment Trust Funds,Springer, March 2013

Yoshino, N., Taghizadeh Hesary, F. (2015), ‘AnalyticalFramework on Credit Risks for Financing SMEs in Asia’.
Asia-Pacific Development Journal. United Nations
Economic and Social Commission for Asia and the Pacific(UN-ESCAP)

22

23

Fiscal Sustainability after Covid-19:
Rethinking of Domar Condition
Naoyuki YOSHINO
Professor Emeritus of Keio University
Former Dean & CEO, ADBI
Director, Financial Research Center/ FSA/Government ofJAPANyoshino@econ.keio.ac.jp

Hiroaki MIYAMOTO
Professor Tokyo Metropolitan University
1

Hong Kong SAR

Estonia

Luxembourg

Denmark

Czech Republic

New ZealandSwedenLatviaIcelandLithuania

NorwayKorea, Republic of

Switzerland

Malta

Australia

Slovak RepublicNetherlands

IrelandFinlandGermany

IsraelSlovenia

Austria

United Kingdom

CanadaSpain

CyprusFranceBelgium

United States

Portugal

Singapore

Italy

GreeceJapan

Debt/GDP Ratio (IMF, 2019)

250

200

150

100500Domar Condition of Fiscal Stability

Interest Rate (rt) > growth rate of the economy(η)  Unstable
Interest Rate (rt)< growth rate of the economy(η)  Stable
3Fiscal Sustainability: Domar condition
Interest rate＜Economic Growth△B

Stable△B

timeDebt
explosion

timer＞gRevival of Domar Condition
by Paul Krugman and Tirore
1.

Domar, E.D. (1944), “The Burden of Debt and the National Income”, American
Economic Review, 34(4), pp. 798-827.

2.

Krugman, P. (2020), “The case forpermanent stimulus”, Mitigating the COVID

Economic Crisis: Act Fast and Do Whatever It Takes, Edited by Richard Baldwinand
Beatrice Weder di Mauro, A CEPR Press VoxEU.org eBook.

Domar condition is obtained only by the supply side ofgovernment bonds and does not take into account ofdemand for government bonds.
US government bonds are purchased all over the world.
5World Bank, Uneven Recovery, April 2021

6

Yoshino-Mizoguchi-Hesary (2019)7

Japanese Debt, 92% held by Domestic Investors
in 2012HOLDERSBanks and Postal Savings
Life and Non-life Insurances
Public Pension funds
Private Pension Funds
Central Bank of Japan
Overseas’ Investors
Households
Others%
45%
20%
10%
4%
8%
8%
5%
3%

Source: MOF

8

Greece’s debt 80%, held by overseas investors (2011)

HOLDERS％Eurozone
ECBIMF
Greek banks & non-banks

15%15%6%
23%

Other European Banks
Non European Banks
Non-Greek non-Banks

10%8%
23%

910

Supply ofGovernment bonds

Revised
DomarCondition

Accumulated
Bonds<Interest rate
Sensitivity
Of demand

Comparison between Greece and Japan

GlobalSolutions
JournalForthcoming ADBI
Discussion
paper(2020) (2020)
Revisit Public Debt Stability Condition: Rethinking of the Domar Condition
Naoyuki Yoshino, Keio University
Hiroaki Miyamoto, Tokyo Metropolitan University

StabilityCondition
IncludingForeignInvestorsYoshino, Mizoguchi and Taghizadeh-Hesary (2019). “Optimal fiscal policy rule forachieving fiscal sustainability: the Japanese case”, Global Business and Economics
Review, Vol.21, No.2, pp.156.
Yoshino and Miyamoto (2020) “Revisit Public Debt Stability Condition: Rethinking of theDomar Condition after COVID-19”, Global Solutions Journal, Germany.
Yoshino and Miyamoto (2021). “Reconsideration of the “Domar condition” to checksustainability of budget deficit”, Public Policy Review, Vol/17, No.3..