The Effect of the COVID-19 Pandemic on Risk of Corruption

Abstract

AbstractThis paper estimates the effect of the COVID-19 pandemic on risk of corruption in Mexico. To calculate the pandemic’s impact on risk of corruption, this study uses monthly administrative data of 378,000 public acquisitions through 64 institutions from the Mexican Federal Government during the 2018–2020 period. These institutions account for approximately 75% of all allocations of public acquisitions made by the Mexican Federal Government. The risk of corruption is measured through the Discrete-Contracts-Value-to-Budget (DCVB) ratio, which represents the ratio of the value of contracts assigned through discretionary non-competitive mechanisms to the total value of contracts per institution. The empirical strategy consists of a difference-in-differences methodology and an event-study design. The analysis is conducted over all institutions as well as by healthcare and non-healthcare institutions. The results show the following: (1) the pandemic increased the DCVB ratio by 17%; (2) the DCVB ratio increased during six months and then it returned to pre-pandemic levels (inverted U-shape form); and (3) surprisingly, the rise in the risk of corruption is mainly driven by non-healthcare institutions. From a policy perspective, Mexico’s Government Accountability Office, although counterintuitive, should focus on non-healthcare institutions when conducting audits targeting public acquisitions made during the pandemic, even though much of the political debate remains centered around the risk of corruption in healthcare institutions.