Introduction

Infrastructure has always played a key role in integrating economies across a region. Notwithstanding certain environmental side effects, well-developed and efficient infrastructure facilities are essential for regional economic development and growth. Seen as part of a dynamic concept, infrastructure is a regional public good, moving factors of production within and across regions, thus helping those regions attain higher productivity and growth.

In a regional setting, infrastructure comprises national and international components. Infrastructure that is created and used exclusively for a nation can be termed as national infrastructure, while infrastructure that has crossborder implications¹ is popularly termed as international infrastructure (hereinafter, crossborder infrastructure). While national infrastructure can indirectly enhance regional or international connectivity, crossborder infrastructure enhances international (and regional) connectivity through the exchange of factors of production, trade and investment. For example, transport networks linking neighboring countries enlarge market size, and help national economies to grow. Thus, crossborder infrastructure is seen as one of the major determinants of economic integration processes, especially for land-locked or island countries (Venables 2007). It is often argued that if countries in a region are not interlinked through efficient crossborder infrastructure facilities, their integration process will undoubtedly slow down (Vickerman 2002).²

Asia's economic performance in the past few years—particularly in the first half of the ongoing decade—has been commendable on many counts. Economic growth has accelerated and is now averaging over 7% per annum.³ A fascinating story is unfolding and the entire world is watching with wonder the emergence of Asia as a major economic force. Accompanying this growth is the need for efficient national and international infrastructure services for both production and consumption, and international trade purposes.

Asia needs substantial investment in infrastructure varying between US$165–412 billion (6.2%–7.3% of GDP) per annum for the period 2007–2011.⁴ Asia's long-term growth and integration hinges upon the quality and quantity of infrastructure services, both national and international, to be developed in years to come. The widening infrastructure gap between countries is resulting in lower productivity, high transportation and logistics costs, reduced competitiveness, and slower growth. Bridging this gap means overcoming several formidable challenges; some of them, as noted by ADB (2006a), are as follows:

• High investment costs. For countries to integrate networks seamlessly, expensive programs of shared support and investments are required so as to benefit from crossborder infrastructure.
• Uneven distribution of benefits. The costs and benefits of regional projects are likely to be distributed unevenly between countries. This often leads to decisions being based on national costs and benefits rather than regional benefits, resulting in insufficient provisions for crossborder infrastructure.
• Financing constraints. The public sector is often unable to provide infrastructure because of its weak financial sector, usually marked by underdeveloped long-term capital markets and recurring fiscal concerns. International markets also remain inaccessible to varying degrees because of the higher rates of return that markets expect from such risks associated with investments in the public sector.
• Varying regulatory response. The varying strengths and weakness of regulatory regimes between countries make regional infrastructure projects difficult to coordinate and develop, particularly in securing private sector financing that requires strong regulation to mitigate risks.

We look ahead at what the challenges are for crossborder infrastructure in Asia, and how to think of approaching them.⁵ Given the above, the objective of this paper is two-fold. First, it aims to identify the trends among national and regional investors financing crossborder infrastructure projects (CBIP) that can enhance regional connectivity. Second, it draws lessons from case studies and experiences to enhance regional cooperation in Asia. As a corollary, it also addresses the major constraints for infrastructure financing (including public and mixed investment, as well as private investment) in selected crossborder infrastructure projects in Asia.⁶

The paper is organized as follows: Section 2 discusses trends in crossborder infrastructure projects across the world by region and sector. This section deals with private sector investments in crossborder infrastructure, and the nature and types of investments driven by the private sector. Section 3 focuses on trends in crossborder transportation and energy infrastructure in Asia through different modes of financing. One of the reasons for selecting crossborder transportation and energy projects is that energy sector projects are driven by market demand and are better suited for principal commercial investment while transport projects usually have to be justified on the broader economic benefits (beyond commercial benefits). Discussion on these two types of crossborder projects is immensely important for private sector financing. Section 4 then presents selected case studies of CBIPs in Asia and evaluates their results. Section 5 presents the crossborder infrastructure development strategy in South America. Finally, Section 6 presents policy recommendations for enhancing Asian regional connectivity through CBIPs.

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