controlling corruption in development aid: new evidence...

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Controlling Corruption in Development Aid: New Evidence from Contract-Level Data Australasian Aid Conference | 14 February 2018 © Alexandra Jonnaert / Mercy Corps Elizabeth Dávid-Barrett Mihály Fazekas Olli Hellmann *Lili Márk Ciara McCorley

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Page 1: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

Controlling Corruption in Development Aid:

New Evidence from Contract-Level Data

Australasian Aid Conference | 14 February 2018

© A

lexandra

Jonnaert

/ M

erc

y C

orp

s

Elizabeth Dávid-Barrett

Mihály Fazekas

Olli Hellmann

*Lili Márk

Ciara McCorley

Page 2: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

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?

2/14/2018 2

Page 3: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

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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Page 4: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

Corruption risk indicators

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Page 5: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

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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Page 6: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

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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Page 7: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

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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Page 8: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

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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Page 9: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

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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Page 10: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

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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Page 11: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

Our findings: donor regulations work

H1

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Page 12: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

Our findings: the context matters

H2

H3

H4

H5

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Page 13: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

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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Page 14: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

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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Page 15: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

Thank you for you attention!

Lili Márk

PhD Student in Economics

Central European University

[email protected]

(former Government Transparency Institue)

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Page 16: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

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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Page 18: Controlling Corruption in Development Aid: New Evidence ...devpolicy.org/2018-Australasian-Aid-Conference/Presentations/LiliMark.pdfprocurement. H2: Higher PSI (time horizon) is associated

No manipulation around threshold

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Share of prior-reviewed contracts

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