Controlling Corruption in Development Aid: New Evidence from Contract-Level Data
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Controlling Corruption in Development Aid: New Evidence from Contract-Level Data Elizabeth Dávid-Barrett 1 Ciara McCorley 1
& Mihály
Fazekas 2 & Olli Hellmann 3 & Lili Márk 2 &
# The Author(s) 2020
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 better control how their funds are spent. However, there is little evidence on precisely how to control corruption in development aid. This article assesses under which conditions donor regulations are successful in controlling corruption in aid spent by national governments through procurement tenders. The article analyses data on donor-funded procurement contracts in 100+ countries in 1998–2008 and uses ‘single bid submitted in a competitive tender’ as a corruption risk indicator. Applying a contract-level propensity score matching and regression analysis, it finds that an intervention which increases donor oversight and widens access to tenders is effective in reducing corruption risks: lowering single bidding on competitive markets by 3.6– 4.3 percentage points. This effect is greater in countries with low-state capacity. Keywords Development aid . Public procurement . Corruption . State capacity . Party
systems
Introduction Donors are under pressure to demonstrate that their money is well spent. Intellectually, they must address concerns that development aid softens the budget constraints on recipient-country governments and interferes with electoral accountability, making it easier for them to spend irresponsibly or syphon off funds. Politically, scandals
* Elizabeth Dávid-Barrett e.david–[email protected]
1
University of Sussex, Brighton, UK
2
Central European University, Budapest, Hungary
3
University of Waikato, Hamilton, Aotearoa New Zealand
Studies in Comparative International Development
showing how foreign aid has been embezzled weaken the support of donor countries’ national electorates, particularly in a global political environment that is increasingly isolationist. Donors have responded by seeking to better control their spending, while balancing this against exhortations to build recipient government capacity. Donors need a stronger evidence base about the mechanisms through which development aid is subverted by corruption. However, most research considers only whether the amount of aid increases corruption. This literature tends to rely on expert- and survey-based assessments of corruption at the country level as the dependent variable e.g. the World Bank’s Worldwide Governance Indicators or Transparency International’s Corruption Perceptions Index. These are based on subjective perceptions of corruption, insensitive to change, and focus heavily on the effect of corruption on business (Heywood and Rose 2014; Ko and Samajdar 2010; Razafindrakoto and Roubaud 2010; Lancaster and Montinola 2001). Moreover, they do not measure corruption in the spending of development aid specifically. A second problem is
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