Abstract
We study the political economy of allocation decisions within a major state investment bank. Our focus is the European Investment Bank (EIB) - The Bank of the EU - which is the largest multilateral lending (and borrowing) institution in the world. We collect (and make available) information on the regions of origin of about 500 national representatives at the EIB's Board of Directors - the decisive body for loan approvals - since its foundation in 1959 and show that a representative's appointment increases the probability of her sub-national region receiving a loan by about 17 percentage points. This effect is driven by large loans financing infrastructure projects. We provide several pieces of evidence, which are consistent with the hypothesis that home-bias lending may lead to resource misallocation, however we cannot conclusively demonstrate this case of economic inefficiency.
Highlights
We study the political economy of loan allocation decisions of the European Investment Bank (EIB) or “the bank of the European Union”
We ask whether these lending decisions made by the powerful Board of Directors of the EIB, which consists of representatives of European Union (EU) Member States, purely follow the economic and EU integration related goals set by the bank, or if they can be explained instead by political or personal motives of the Member State representatives running the bank
We study political economy aspects of lending decisions within the European Investment Bank
Summary
We study the political economy of loan allocation decisions of the European Investment Bank (EIB) or “the bank of the European Union”. We ask whether these lending decisions made by the powerful Board of Directors of the EIB, which consists of representatives of European Union (EU) Member States, purely follow the economic and EU integration related goals set by the bank, or if they can be explained instead by political or personal motives of the Member State representatives running the bank. The EIB together with the European Fund for Strategic Investments serves as an important investment instrument in Europe, with current debates on the economic governance of the Eurozone often highlighting an even larger future role for the EIB (2015b, 2018). In 2017, new commitments by the EIB in Europe summed up to around 76 billion Euros (EIB 2017b). The EIB together with the European Fund for Strategic Investments serves as an important investment instrument in Europe, with current debates on the economic governance of the Eurozone often highlighting an even larger future role for the EIB (2015b, 2018).
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