European development banks and the political cycle

Abstract

This paper investigates whether the lending activity of European development banks is affected by opportunistic political behavior, by looking at the change in loans extended by these entities in election years. The empirical analysis leverages on a unique manually collected dataset that includes all the development banks headquartered in Europe, for the period 2002–2015.A comparison with the rest of the European banking system reveals that while the political view of development banks cannot be supported as a general rule, it finds empirical evidence in flawed democracies, where large development banks actually tend to increase their lending activity in election years.