The Political Economy of Multilateral Lending to European Regions

50 Pages Posted: 11 Nov 2019

See all articles by Zareh Asatryan

Zareh Asatryan

ZEW – Leibniz Centre for European Economic Research

Annika Havlik

ZEW – Leibniz Centre for European Economic Research; University of Mannheim

Date Written: 2019

Abstract

We study the political economy of allocation decisions within a major state investment bank. Our focus is the European Investment Bank (EIB) - "The Bank of the EU" - which is the largest multilateral lending (and borrowing) institution in the world. We collect (and make available) information on the regions of origin of about 500 national representatives at the EIB's Board of Directors - the decisive body for loan approvals - since its foundation in 1959 and show that a representative's appointment increases the probability of her sub-national region receiving a loan by about 17 percentage points. This "home-bias" effect is driven by large loans financing infrastructure projects. We provide several pieces of evidence, which are consistent with the hypothesis that home-bias lending may lead to resource misallocation, however we cannot conclusively demonstrate this case of economic inefficiency.

Keywords: Political economy of international organizations, Regional favoritism, European Investment Bank, European Union

JEL Classification: D72, F53, G2

Suggested Citation

Asatryan, Zareh and Havlik, Annika, The Political Economy of Multilateral Lending to European Regions (2019). ZEW - Centre for European Economic Research Discussion Paper No. 19-046. Available at SSRN: https://ssrn.com/abstract=3484765 or http://dx.doi.org/10.2139/ssrn.3484765

Zareh Asatryan (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Annika Havlik

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim ( email )

Mannheim, 68131
Germany

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