Controlling Corruption in Development Aid: New Evidence from Contract-Level Data

GTI-WP/2017:03, Budapest: Government Transparency Institute

39 Pages Posted: 24 Jan 2018

See all articles by Elizabeth Dávid-Barrett

Elizabeth Dávid-Barrett

Said Business School; University of Sussex

Mihaly Fazekas

University of Cambridge - Faculty of Human, Social, and Political Science

Olli Hellmann

University of Sussex

Lili Márk

Central European University, Students

Ciara McCorley

University of Sussex

Date Written: January 16, 2018

Abstract

Following scandals about corruption in foreign aid, and in a political climate that increasingly questions the legitimacy of development assistance, donors are under pressure to control how their funds are spent. At the same time, they also face pressure to trust recipient governments to disburse project funds themselves, so as to build capacity in developing countries. This paper assesses under which conditions donor regulations are successful in controlling corruption in aid spent by national governments through procurement tenders. By mining procurement contracts funded by the World Bank in 100 countries over the period 1998-2008 for corruption “red flags”, we create a dataset that provides an unprecedentedly accurate picture of corruption risks in the spending of aid across the developing world. Through propensity score matching and regression analysis, we find that the 2003 World Bank regulatory reform aiming to control corruption was effective in reducing corruption risks: lowering single bidding on competitive markets by 3.8-4.3 percentage points. This effect is greater in countries with low state capacity.

Keywords: development aid, World Bank, corruption, regulation

JEL Classification: H57, F35

Suggested Citation

David-Barrett, Elizabeth and Fazekas, Mihaly and Hellmann, Olli and Márk, Lili and McCorley, Ciara, Controlling Corruption in Development Aid: New Evidence from Contract-Level Data (January 16, 2018). GTI-WP/2017:03, Budapest: Government Transparency Institute. Available at SSRN: https://ssrn.com/abstract=3103395 or http://dx.doi.org/10.2139/ssrn.3103395

Elizabeth David-Barrett

Said Business School ( email )

Park End Street
Oxford, OX1 1HP
United Kingdom

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

Mihaly Fazekas (Contact Author)

University of Cambridge - Faculty of Human, Social, and Political Science ( email )

Cambridge, CB3 9DD
United Kingdom

Olli Hellmann

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

Lili Márk

Central European University, Students ( email )

Budapest
Hungary

Ciara McCorley

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

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