controlling corruption in development aid: new evidence...

Controlling Corruption in Development Aid:

New Evidence from Contract-Level Data

Australasian Aid Conference | 14 February 2018

© A

lexandra

Jonnaert

/ M

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s

Elizabeth Dávid-Barrett

Mihály Fazekas

Olli Hellmann

*Lili Márk

Ciara McCorley

Corruption, aid and procurement

- Inconclusive findings in Corruption-Aid :

- aid fuels corruption

- aid helps to curb corruption

- no significant correlation

- About 50% of aid is spent via local procurement

- Further questions:

- What about other incentives? – e.g. time horizons

- What about interactive effects between donor regulations

and recipient country context?

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Our project

- See project details here

- 500K+ aid-funded contracts

- 100+ countries

- Longitudinal data: 1991-2016 in some cases

- Donors: World Bank, Inter-American Development Bank, EuropeAid (procurement is local)

Research questions:

I. How are corruption patterns affected by changes in donor rules?

II. How do corruption patterns vary according to political context?

III. Do donor efforts to control corruption work better in some contexts than others?

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Corruption risk indicators

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World Bank Regulatory change in 2003

- Most significant changes:

- Donor oversight: e.g. intro of procurement plans, extension

of audits for bidder (not just winners)

increase costs of corruption

- Tender advertisement: wider use of electronic

advertisement

increase competition

- E-procurement

lowers bidding costs

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Definition of context

- Political party system institutionalisation (PSI)- To capture time horizon of elites

- e.g. how many parties have permanent organisations / local party branches, publicly available party platforms, typically members of the party vote together

- Source: V-Dem database

- State capacity (SC)

– 3 core dimensions• Extractive capacity: collect money, raising revenues

• Coercive capacity: maintain order, protect borders

• Administrative capacity: develop policies, provide public goods

- Source: Hanson and Sigman (2013)

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Our hypotheses

H1: The 2003 reform of World Bank procurement rules decreases corruption risks in aid-funded public procurement.

H2: Higher PSI (time horizon) is associated with lower corruption risks in aid-funded public procurement.

H3: Higher state capacity is associated with lower corruption risks in aid-funded public procurement.

H4: The 2003 reform of the World Bank procurement rules decreases corruption risks most where PSI (time horizon) is high.

H5: The 2003 reform of World Bank procurement rules decreases corruption risks least where state capacity is high.

risks

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Our hypotheses

H1: The 2003 reform of World Bank procurement rules decreases corruption risks in aid-funded public procurement.

H2: Higher PSI (time horizon) is associated with lowercorruption risks in aid-funded public procurement.

H3: Higher state capacity is associated with lowercorruption risks in aid-funded public procurement.

H4: The 2003 reform of the World Bank procurement rules decreases corruption risks most where PSI (time horizon) is high.

H5: The 2003 reform of World Bank procurement rules decreases corruption risks least where state capacity is high.

recipient

country context

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Our hypotheses

H1: The 2003 reform of World Bank procurement rules decreases corruption risks in aid-funded public procurement.

H2: Higher PSI (time horizon) is associated with lower corruption risks in aid-funded public procurement.

H3: Higher state capacity is associated with lower corruption risks in aid-funded public procurement.

H4: The 2003 reform of the World Bank procurement rules decreases corruption risks most where PSI (time horizon) is high.

H5: The 2003 reform of World Bank procurement rules decreases corruption risks least where state capacity is high.

interactive

effects

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Our methods of analysis

2000 2001 2002 2003 2004 2005 2006 2007 2008 Total

Control 1,307 2,434 3,572 4,062 4,060 3,432 2,160 1,505 690 23,222

Treated 0 0 0 0 319 1,133 1,496 1,601 1,047 5,596

Total 1,307 2,434 3,572 4,062 4,379 4,565 3,656 3,106 1,737 28,818

Number of contracts awarded in the treated and control groups

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Our findings: donor regulations work

H1

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Our findings: the context matters

H2

H3

H4

H5

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Our findings: the context matters

.15

.2.2

5.3

.35

Pre

dic

ted

sin

gle

bid

ratio

-1.5 -1.25 -1 -.75 -.5 -.25 0 .25 .5State capacity index

control treatment

Predictive Margins

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Conclusion

• We built a novel contract-level procurement

database of aid spending

• Analysing the impacts of WB reform, we find that

– it decreased corruption risks (4% less single bidding)

– context matters: higher PSI / state capacity – lower

corruption risks

– context matters: higher impact for lower state capacity, PSI

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Thank you for you attention!

Lili Márk

PhD Student in Economics

Central European University

Mark_Lili@phd.ceu.edu

(former Government Transparency Institue)

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Our dependent variable: single bidding

Contracts above 50K USD; countries with at least 500 contracts, weigthed

by contract value, lin.corr.coeff.= -0.28

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No manipulation around threshold

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No manipulation around threshold

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Share of prior-reviewed contracts

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