**Private investment.** Under the right conditions, public investment can crowd-in private investment (World Bank 2016i).<sup>9</sup> For example, private firms may be able to reap the benefits of scale, if public infrastructure facilitates market access (Calderón,Moral-Benitob, and Servéna 2010). However, in South Asia, only _India_ appears to have experienced a positive crowding-in effect (Jesintha and Sathanapriya 2011; World Bank 2006).

**Financing.** Financing for public and private investment can be expanded in a number of ways to narrow the investment financing gap (Andres, Biller, and Dappe 2014; McKinsey 2013; ADB 2012, 2009). _First_ , public-private partnership may offer efficiency gains and cost-effectiveness (e.g., infrastructure funds), and at the same time alleviate fiscal pressures (Anadon and Surana 2015; Nataraj 2007). This can help reallocate government spending to socially desirable projects that cannot, in practice, be undertaken by the private sector, for instance, because of an unduly low private rate of return (e.g., water supply and sanitation projects). _Second_ , domestic savings can be mobilized by improving access to the financial system (e.g., encouraging pension funds) and by broadening and raising government revenue collection. _Third_ , banks’ lending capacities can be increased by strengthening their balance sheets, and the efficiency of capital allocation may be improved by increasing the commercial orientation of banks, including through privatization and governance reforms. _Fourth_ , greater commercial orientation (through privatizations or concessions to private investors) of state-owned enterprises could raise efficiency and increase investment. _Fifth_ , reducing asset-liability mismatches through greater use of funding through capital markets (e.g., infrastructure bonds), can be an alternative to heavy reliance on bank lending for infrastructure-related projects. _Finally_ , FDI in infrastructure can be encouraged by removing regulatory obstacles to doing business in restricted sectors (Kirkpatrick, Parker, and Zhang 2006; World Bank 2000).

**Reforms to foster an enabling environment.** South Asia is just ahead of Sub-Saharan Africa, but ‐ behind the other regions in terms of a conducive business climate (World Bank 2016f; Lopez Acevedo, Medvedev, and Palmade 2016). Entry and administrative barriers in many sectors (construction, finance, retail and wholesale, telecommunication, and health care) in _Bangladesh_ , _India_ , and _Pakistan_ have hampered investment in these sectors. The burden of regulatory compliance, delays in utility connections, difficulties in obtaining permits to start and operate business, high taxes, and rigid labor markets raise the cost of doing business and discourage investment (Pachouri and Sharma 2016; Shirke and Srija 2014). Compared to an average of 103 days in EMDE, obtaining services from utilities (e.g., electricity) can take four time as long in _Bangladesh_ and almost twice as long in _Pakistan_ (World Bank 2016f). In _India_ , investors point to restrictive labor laws as contributing to lower productivity in the manufacturing sector, restricting employment opportunities for women, and discouraging the adoption of new technologies.

Reforms that promote competitiveness and reduce barriers to trade can encourage investment in the tradable export-oriented sectors (e.g., services and manufacturing). This can also level the playing field and increase profitability of exporting, or of competing with imports in hitherto protected industries (Alfaro and Chari 2014). More generally, reforms to reduce regulatory

> 9 Public investment could also lead to crowding-out of private investment, e.g. Pakistan (World Bank 2016g).

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