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.
Highlights
Donors are under pressure to demonstrate that their money is well spent
We have argued that the impact of aid on corruption depends, on the one hand, on donor corruption control regulations, and on the other hand, on recipient-country political economy in terms of party system institutionalization (PSI) and state capacity
The third method matched on countrylevel state capacity and PSI
Summary
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. 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). They do not measure corruption in the spending of development aid
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