Cost Deviations in MDB Funded Transport Infrastructure Projects

Student thesis: Master Thesis and HD Thesis

  • Tobias Lilleøre Hougaard
Transport infrastructure is one of the most important obstacles to economic development as countries in the developing world have generally low standards of transport infrastructure. Furthermore, these countries lack the financial capabilities to invest in better transport infrastructure. They therefore often turn to multinational development banks (MDBs) to get the financial help they need in order to improve their transport infrastructure. One such bank, is the Asian Development Bank (ADB), who uses almost a third of its budget on funding transport infrastructure projects (TIPs).
The issue how well MDBs are at making precise budgets for TIPs has not received much scholarly attention. This despite research on national governments ability to do so has shown, that this is a major obstacle in delivering better transport infrastructure to their citizens.
This thesis therefore attempts to answer the question: Why do ADB funded transport infrastructure projects (TIPs) have differing cost deviations? This question is answered drawing on literature on both MDB projects and nationally funded TIPs to identify two theoretical answers to this question: Cost deviations differ because of the policies and institutions of the country in which projects are build; And cost deviations differ because the borrowers are strategically misrepresenting costs. These theories are tested on a sample of 179 TIPs, which the ADB has provided funding for. Data on these projects are collected and used in a series of quantitative methods to analyze the correlation between independent variables representing the theories and projects’ cost deviation.
The analyses conducted in this thesis shows, that there is no correlation between cost deviations and ratings of countries’ policies and institutions. This leads to the conclusion, that cost deviations do not differ because of differences in countries’ policies and institutions, unless budgets are adjusted according to these. Contrary, there are some correlation between how much of a project a borrower finances on its own and the size of cost deviations. This leads to the conclusion, that cost deviations partly differ due to borrowers strategically misrepresenting costs. Furthermore, the thesis found, that there were very large differences between the cost deviations of different countries, which could not be explained by either theory. Therefore, additional research should be made in an effort to identify why these differences between countries exist.
The conclusions in this thesis are rather aimed at spurring additional research into the causes of cost deviations, than leading to practical implications, as this thesis only points at some causes, which needs to be better understood.
Publication date29 May 2020
Number of pages58
ID: 333219147