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Abstract: This study investigates the role of project finance as a driver of economic growth. We hypothesize that project finance is beneficial to the least developed economies as it is able to compensate for a lack of domestic financial development. The contractual structure unique to project finance leads to better investment management and governance. Investigating 90 countries from 1991 to 2005, we find support for our hypothesis. Results show that project finance fosters economic growth and that its effect is strongest in low-income countries, where financial development and governance is weakest. [Copyright &y& Elsevier]

Abstract: Because of the presumed guns vs. butter trade-off, defense expenditures in developing countries are coming under increased scrutiny from the international lending agencies as well as key donors. As a result, defense expenditure cuts have often taken place despite rising security concerns. Empirically we find that developing countries may have more options than previously believed in their quest for adequate security and sustained economic growth. Specifically the main finding of the study is that key combinations of reforms and governance measures are likely to exist and are capable of neutralizing many of the adverse economic effects often associated with defense expenditures. The key is to coordinate economic liberalization and governance reforms in the civilian sector with the requirements for improved security in the defense sector. [Copyright &y& Elsevier]