The Moderating Role of Corruption in the Inverted U-Shaped Relationship Between Red Tape and Private Investment in PPP Projects: Evidence From Developing Countries

Government environment is the main determinant in attracting private investment into public–private partnership (PPP) projects, especially in developing countries. Red tape, an indicator of a government's efficiency, plays a critical role in private investment in PPP projects. Reasonable levels of red tape can enhance government transparency and promote private investment, while excessive red tape usually represents low governance efficiency and imposes further risk on private investors. This article explores how developing countries’ red tape affects private investment in PPP projects by examining the moderating effect of corruption. Analyzing a database of 308 PPP projects in 111 developing countries, the study reveals an inverted U-shaped relationship between red tape and private investment. Corruption weakens the positive relationship between red tape and private investment at low levels of red tape and mitigates their negative relationship at high levels. The study integrates the inconsistent results of previous research that postulated either a positive or negative relationship between red tape and private investment by proposing a nonlinear model. It also theorizes the moderating effect of corruption based on real management practice and illustrates its mechanism in absorbing private investment in PPP projects.