Projects, Political Risk, and Performance: Evidence from Infrastructure Projects in Africa

This paper examines whether political risk, macroeconomic conditions, and project characteristics systemically influence the economic rate of return of World Bank-financed infrastructure projects in African countries. Using project-level data and country-level indicators, baseline OLS regressions and multiple stage selection models are estimated, along with joint estimation frameworks, to address the fact that the outcome variable, individual projects' economic rate of return, is only reported for a subset of projects. Ultimately, this study finds political risk has a significant impact on the likelihood a project is approved and completed, with infrastructure projects more likely to be selected if they are initiated in countries with strong governance indicators. Political violence introduces uncertainty but does not consistently reduce economic rates of return. Once a project is selected, initial conditions matter less for the magnitude of returns, highlighting that what happens in each individual project and the quality of governance predominantly shape outcomes.