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financing specific investment projects. In addition, given the level of foreign savings used to finance infrastructure spending, the composition of foreign flows matters. For example, foreign direct investment is often contingent on an externally perceived adequacy of business infrastructure.

**3.1. The** Level **of Foreign Funding:** The relationship between the net flow of foreign savings and infrastructure investment is expected to be positive (Khan and Hoshino, 1992). Foreign savings directly provide funds for investment in infrastructure. Foreign savings provided for non-infrastructure expenditures free funds for infrastructure investment (foreign savings are fungible).

The total level of foreign savings flows is defined as the sum of official flows, private flows (commercial bank, other private guaranteed and non-guaranteed), direct foreign investment and other long-term net inflows per capita in constant 1980 US dollars. Two variants of foreign savings inflows are considered, differing by whether credits from the IMF are included or excluded from the tally of official flows. The first measure, NFFCAP1K, includes IMF credits, the second, NFFCAP2K, excludes IMF credits. The data source for the component variables measuring foreign savings flows is WDR91SD. Specifically, the variables MLDN5 (multilateral debt), NOTN5 (net official transfers) and, in the case of NFFCAP1K, IMFCN5 (IMF credits) are the component variables for official flows, CBN5 (commercial bank), OPGN5 (other private guaranteed), and PNGN5 (private non-guaranteed) are the component variables for private flows, DFIN5 measures direct foreign investment and OLTNIN5 measures net other long term flows. These nominal flows are then converted to constant 1980 dollars and divided by the population for the year concerned, using data from WDR9lSD. Sensitivity analysis is conducted to determine whether IMF credits affect infrastructure expenditures differently than other sources of foreign savings.

**3.2. The** Mix **of Foreign Funding:** Given the level of net foreign flows, the amount of direct foreign investment is expected to increase public investment in infrastructure, given the perception in the literature that foreign investors demand infrastructure as a condition to invest in the country concerned. There is no strong perception that donor or commercial bank priorities emphasized infrastructure investments over the past decade (Khan and Hoshino, 1992, provide some evidence to the contrary). Accordingly, given the level of total net foreign flows, the level of official and commercial bank flows are not expected to influence the level of infrastructure expenditures.

The influence of the mix of foreign funding is captured by alternately including in the regressions variables measuring the level of official (NOFGDP), commercial bank (NCBGDP), or direct foreign investment (DFIGDP) flows as percentages of GDP. Again, two measures of official foreign flows are considered. The first, NOFGDP1, includes IMF credits and the second, NOFGDP2, excludes IMF credits. The data source for the component variables used to construct these variables is WDR91SD. Official, commercial bank and direct foreign investment are defined as above in the discussion of the total level of foreign funding.