Corruption, Democracy and Privately Financed Infrastructure

Abstract

Do political institutions moderate the influence of corruption on privately financed infrastructure projects? We argue that electoral competition increases the cost of corruption for private partners and focuses politicians’ attention on providing projects with public (rather than private) benefits. Without such incentives, corruption is not contained and the private benefits of bribes and favorable contract terms are responsible for increasing numbers of projects. Studying 116 countries between 1984-2012, we find that as public sector corruption increases in democracies, no change in the number of projects is observed, while more projects emerge in non-democracies as corruption worsens.

Keywords: Corruption; Infrastructure; Political Institutions