The Political Economy of International Finance Corporation Lending

47 Pages Posted: 24 Oct 2017

See all articles by Axel Dreher

Axel Dreher

Heidelberg University

Valentin Lang

University of Zurich

Katharina Richert

University of Heidelberg - Alfred Weber Institute for Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2019

Abstract

The bulk of International Finance Corporation (IFC) lending benefits companies from rich countries, and projects in countries with middle income. Large conglomerates such as Lidl or Mövenpick have been among its direct beneficiaries. This contrasts to some extent with the IFC’s official mandate, which is to finance poverty-reducing projects for which private capital is not available on reasonable terms. We investigate the drivers of this mismatch. According to our theory, the governments of industrialized countries where borrowing companies are based form coalitions with governments of middle-income countries where the projects are implemented. We therefore expect preferential treatment to be most pronounced when the representatives of both the recipient’s and the company’s countries are best able to collude in exerting their influence. We argue that this will be the case when both countries’ governments are represented among the IFC’s Board of Executive Directors, and when they have extraordinary clout with major IFC shareholders. Using data for more than 3000 IFC projects over the 1995-2015 period we show that the (joint) influence of these countries helps them to receive a disproportional share of IFC funding.

Keywords: international finance, international bureaucracies, political economy

JEL Classification: F330, F530, F340, F350

Suggested Citation

Dreher, Axel and Lang, Valentin and Richert, Katharina, The Political Economy of International Finance Corporation Lending (May 2019). CESifo Working Paper Series No. 6661, Available at SSRN: https://ssrn.com/abstract=3057443 or http://dx.doi.org/10.2139/ssrn.3057443

Axel Dreher (Contact Author)

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

Valentin Lang

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Katharina Richert

University of Heidelberg - Alfred Weber Institute for Economics ( email )

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