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2.6. Debt Obligations: It is hypothesized that, overall, a larger debt obligation will decrease government expenditure on infrastructure, given the likely dominance of this obligation over more discretionary government expenditures such as outlays on infrastructure. However, it is also recognized that a large debt obligation results, in part, from the capacity of governments to attract foreign savings. To the extent that a large debt obligation also reflects the continued ability of governments to attract foreign savings, unless the current net flow of foreign savings is controlled for in the regression, an opposing positive relationship between the debt obligation and infrastructure expenditures may be observed.

Three alternative measures of the debt obligation are considered. The first, DSGDP, is debt service obligations (interest and amortization on total extemal debt) as a percentage of GDP. It is computed as the total debt service ratio (interest and amortization on total external debt as a percentage of export revenues) multiplied by the value of exports in current local currency, all divided GDP in current local currency. The data source for the debt service ratio is WDR91SD, while that for the local currency value of exports and GDP is _The World Tables 1993._ This formulation of debt obligations emphasizes the magnitude of the debt burden relative to the total productive capacity of the economy. A second formulation focus on obligations relative to the economy's capacity to generate foreign exchange. TDS is the traditional debt service ratio, the value of interest and amortization on total external debt as a percentage of export revenues. As noted earlier, the data source for this variable is WDR91SD. Finally, long-term debt as a percentage of GDP, DODGDP1, is considered. The data source for this variable is also WDR91SD.

2.7. Institutional Development: It is not clear, a _priori,_ how institutional development is likely to influence infrastructure expenditures. Where institutional development is strong, transactions costs are lowered and the ability of the private sector to take over the supply of some forms of infrastructure provision may increase. On the other hand, where institutional development is strong, the market is likely to flourish, increasing private investment and the demand for complementary public infrastructure.

The variable used to measure the level of institutional development, GASTIL, is the arithmetic average of two indices, one measuring political liberties, GAS POL, and the other civil liberties, GAS_CIV. The index of civil liberties is a measure of the extent to which people are able to freely express their opinions. The index of political rights is designed to measure the extent to which individuals have the right to participate meaningfully in the political process. These variables are indices with values from 1 (most democratic/free) to 7 (least democratic/free). Accordingly, lower values of GASTIL correspond to higher levels of institutional development. The data source for GASTIL is WDR91SD.<sup>7</sup>

# _3. The Level and Mix of External Funding_

Both the level and the mix of external funding influence the level of infrastructure spending. The level of foreign saving is important as it is often provided directly for