Financing for infrastructure
By Insurance companies

Naoyuki YOSHINO
Dean & CEO
Asian Development Band Institute (ADBI)
Professor Emeritus, Keio University, JapanTokyo, Japan 20191

Circulation of Savings into Domestic Investment

Domestic
Savings
Bank
Deposits

Insurance

BankLoans
CapitalMarketLarge
Corporates

SMEs

Pension Funds

Public Sector(Tax finance)

Infrastructure2

Infrastructure

Safe asset

3

4

5

Spillover
Effects ofInfrastructure
Investment

Railways
Electricity

User Charges are not enough
Increase in tax revenues
by spillover effects

user charges

1/14/2018

7

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

Construction

8Operation periodOutcome

Concept of subsidy based on additional flowof tax revenue due to infrastructure
Treatment Group∆Tax=𝒕ҧ ∗ ∆Y

∆Tax

(no need for increase in tax rates)

Subsidy = 0.5*∆Tax

Control groupα+β0α

𝑵Time𝑶𝒖𝒕𝒄𝒐𝒎𝒆 = 𝜶 + 𝜷𝟎 𝑫𝒊 + ෍ 𝜷𝟎 ∗ 𝑫𝒊 ∗ 𝑻𝒕 + 𝜺𝒊,𝒕𝒕=𝟏

Highspeed Rail Network
Japan Railway (JR)High speed railway Lines of JR
Standard Gauge
2,765 km800 series, JR Kyushu

10Estimation results of Increased tax revenues
High speed railways JR Kyushu line
25000020000015000010000050000

0-50000

Construction
Operation 1
Operation 2[1991-2003][2004-2010][2011-2013]∆ Total Tax
94895
75131
194790∆ Personal Income Tax
7447-2384348690∆ Corporate Tax
3435
-6883
80998

∆ Other Taxes
84012
10585865102
11

HotelBusiness

Promote Tourism

Restaurants at
Various Stations

JR Farm

12

Macroeconomic Effect of Infrastructure
Investment
Spillover Effects Estimated from a Macroeconomic Translog Production
Function

1956-60

1961-65

2001-05

2006-1020% returned

0.696
0.452
1.0710.305

0.737
0.557
0.973
0.306

0.114
0.091
0.132
0.045

0.108
0.085
0.125
0.042

Increment

43.8%

41.5%

39.0%

39.1%

Direct effectIndirect effect (Kp)
Indirect effect (L)Land Trust for Infrastructure Investment
Spill Over Effects

Transfer ofManagement

LandOwners Dividends

TrustBank(WatchProperUseOf
Land)

Investors

Tax
Increase⑤

RailwayCompany

New④ Business
Increased
Employment

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

Long term infrastructure bond𝑡∗

Return𝑅ത

FixedInterestRate0𝑡→𝑁𝑅𝑡ҧ

15

Infrastructure bond and Equity Investment𝑡∗

ReturnEquityInvestors𝑅ത

Fixed InterestRate Bond0𝑡→𝑁𝑅𝑡ҧ

16

Graphical explanation of Disaster Risk

GDPY non-affectedδ,
Difference-in-Difference
Coefficient
Y non-affected,
beforeY affected

TimeFlood

Y affected, before∆𝒀𝒊𝒕 = 𝜶𝒊 + 𝝋𝒕 + 𝜹 𝑫𝒇𝒍𝒐𝒐𝒅 × 𝑫𝒂𝒇𝒕𝒆𝒓𝒊𝒕+ 𝝐 𝒊𝒕

∆𝑌𝑖𝑡 - GDP growth rate; 𝛼𝑖 - sum of autonomous and region specific rate of growth; 𝜑𝑡 - year specificgrowth effect; 𝐷𝑓𝑙𝑜𝑜𝑑 × 𝐷𝑎𝑓𝑡𝑒𝑟 - dummy variable indicating that observation belong to affected𝑖𝑡group after flood period; δ- difference in difference coefficient; 𝜖 𝑖𝑡 - error term.

18

Difference in difference estimation coefficients,million. JPY
Services sector : 4 years decline
Nagoya0-1000000-1500000-2000000-2500000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

LehmanShock-500000

1999

Flood

1998

2010

2011

Give incentives to operating companies
SOE Reform  Increase efficiency and rate of return20

Infrastructure & Education
Yoshino and Umid Abidhadjaev (2016)
Dependent variable: log difference GDP per capita in 1991-2010
Regression number
Variables
lnY_1991
ln(n+g+d)ln(Kg)

REG.1
Coef.
-0.06
(-0.54)-3.09(-0.59)
0.23(1.17)

REG.2
Coef.
-0.14
(-1.35)-5.75(-1.23)0.31(2.00)ln(Sec)ln(Kg)xln(Sec)

REG.3
Coef.
-0.14
(-1.38)-4.36(-0.77)0.53(3.30)
0.00(0.46)

0.20(1.59)ln(Uni)

0.21(2.07)

ln(Kg)xln(Uni)Constant-0.28(-0.33)0.24(2.76)
0.56(0.69)

Number of observations
R-squared
F-statistic

44.00
0.21
2.6244.00
0.30
4.14

0.48
(0.57)

44.00
0.30
3.29

21

YOSHINO Naoyuki, and Farhad Taghizadeh–Hesary, (2019)“Modelling the social funding and spill-over tax for Addressing thegreen energy financing gap”, Economic Modelling, 2019,
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 ofInfrastructure on Tax Revenue: Case Study of High-Speed Train inJapan. Journal of Infrastructure, Policy and Development 1 (2): 129–148.
Yoshino, Naoyuki, and Masaki Nakahigashi. 2004. “The Role ofInfrastructure in Economic Development.” ICFAI Journal ofManagerial Economics 2: 7–24.
Yoshino, Naoyuki, Masaki Nakahigashi, and Victor Pontines. 2017.
“Attract Private Financing to Infrastructure Investment by Injectionof Spillover Tax Revenues.” Nomura Journal of Asian Capital Market
1 (2): 4–9.

Yoshino, Naoyuki, Umid Abidhadjaev and Makaki Nakahigashi (2018),“Closing the Asian Infrastructure Gap”, HORIZONZ, Journal ofInternational Relations and Sustainable Development, Issue No.10,
Winter 2018.
Yoshino, Naoyuki, Matthias Helble and Umid Abidhadjaev (2018),
Financing Infrastructure in Asia and the Pacific: Capturing Impacts
and New Sources, Asian Development Bank Institute.

Thank you for your Attention