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School of International and Public Affairs Columbia University May 14, 2004 Connecting the Source: The Case for Private Investment in Infrastructure Jefferson Clarke (MPA, 2007) Adam Glatzer (MPA, 2007) Alexander Kasuya (MPA, 2007) Daniel Kosinski (MPA, 2007) Table of Contents 1 Introduction 2 2 Overview 4 2.1 Economies in transition 4 2.2 The Political Economy 4 2.3 Funding 7 3 The Case for Infrastructure Investment 10 3.1 Literature Review 10 3.2 Data Sources and Methodology 12 3.3 Dependent Variable 12 3.4 Independent Variables 14 3.5 Adjusting for Limited Data 15 3.6 Correction Strategies 15 3.7 Results 16 3.8 Process for Omitting Outliers 18 3.9 Discussion 20 3.10 Future Directions 20 4 The Consequences of Limited Industry Diversity 22 4.1 The Natural Resource Curse 22 4.1.1 Dutch Disease 23 4.1.2 Increased Volatility 25 4.1.3 Inefficient Specialization 27 4.1.4 Rent-Seeking Behavior 27 4.1.5 Conclusion 28 5 Case Studies 29 5.1 Case Study: Russian Trans-Siberian Pipeline 29 5.1.1 Background 29 5.1.2 Economics 31 5.1.3 Politics 32 5.1.4 Conclusion 33 5.2 Case Study: Georgia- The South Caucasus Pipeline 34 5.2.1 Complications 36 5.2.2 Future of the Pipeline 37 5.2.3 Conclusion 37 6 The Strategic Approach 39 6.1.1 National Oil Funds 39 6.1.2 Regional cooperation 40 7 Citations 42 Introduction In the 1960’s the Karmet Steel Works in Temiritau, Kazakhstan was the largest industry producer in the Soviet Union employing 70,000 people and running a majority of the town services, but after the break-up of the Soviet Union in 1991, the company could no longer rely on guaranteed orders from the government and output fell by 50 percent. The local economy fell apart, drugs became rampant, and AIDS increased dramatically. In 1995 the LNM Group, an international steel group owned by Lakshmi N. Mittal, bought the dying steel mill and revived it into the largest private employer in Kazakhstan with 56,000 workers. The mill, now named Ispat Karme