Targeted Aid and the Threat of Capture in World Bank Projects

1. Targeted Aid and the Threat of Capture in World Bank Projects Matthew S. Winters University of Illinois at Urbana-Champaign mwinters@illinois.edu 14 November 2009

2. Corruption in World Bank Projects • March 2008: World Bank and Indian government announce investigation into five Bank-financed health projects ($569 million) • Second National AIDS Control Project: due to bid-rigging, faulty HIV-test kits may have been distributed to clinics and blood banks • Orissa Health Systems Development Project: uninitiated/incomplete hospital rehabilitation  leaky roofs, crumbling ceilings, ungrounded neo-natal equipment

3. Corruption in World Bank Projects • “I hadn’t worked on one project during those twelve years [at the World Bank] that did not reek of corruption” (Berkman 2008: 121) • This is extreme, but is it correct? • And what factors make a project more or less susceptible to capture or corruption? • Key hypothesis: more specifically targeted projects are less likely to suffer from capture

4. Corruption in World Bank Projects • “I hadn’t worked on one project during those twelve years [at the World Bank] that did not reek of corruption” (Berkman 2008: 121) • This is extreme, but is it correct? • And what factors make a project more or less susceptible to capture or corruption? • Key hypothesis: more specifically targeted projects are less likely to suffer from capture

5. Corruption in World Bank Projects • “I hadn’t worked on one project during those twelve years [at the World Bank] that did not reek of corruption” (Berkman 2008: 121) • This is extreme, but is it correct? • And what factors make a project more or less susceptible to capture or corruption? • Key hypothesis: more specifically targeted projects are less likely to suffer from capture

6. Corruption in World Bank Projects • “I hadn’t worked on one project during those twelve years [at the World Bank] that did not reek of corruption” (Berkman 2008: 121) • This is extreme, but is it correct? • And what factors make a project more or less susceptible to capture or corruption? • Key hypothesis: more specifically targeted projects are less likely to suffer from capture

7. Targeted Aid • Insofar as international donors want to constrain governments into using aid for poverty alleviation, we generally think about donor conditionality (e.g. Svensson 2000) • But an alternative might exist in which domestic constituencies constrain the government and/or make the government a better aid monitor

8. Targeted Aid • If a donor targets aid at a particular group in society – defined geographically or socially – and that group is aware of this, then the group can organize around the aid project, possibly constraining the government and preventing capture or corruption • A Project-Level Hypothesis: aid projects with more well-defined constituencies should be less subject to capture

9. Database of Capture in World Bank Projects • Based on World Bank’s Implementation Completion and Results Report (ICR) • Compiled by World Bank operations team “using input from the implementing government agency, co-financiers, and other partners/stakeholders” • Reviewed by Internal Evaluations Group and submitted to Board • Each finished report available to public since August 2001; some earlier reports also available • Coded for all publicly-available ICRs as of the end of 2005

10. Outcome Variable: Capture • If aid funds do not reach their intended destination (as cash or as goods and services), I refer to them as having been captured (Reinikka and Svensson 2004) • Corruption: kickbacks, bribery, bid-rigging, embezzlement • Discriminatory government policies in selecting program recipients • Reallocation of funds to other purposes • Purposeful act – not waste or inefficiency due to incompetence

11. Coding ICRs for Capture • Code “Yes” if: • Direct mention of corruption (bid-rigging, kickback schemes, etc.) • Political interference in allocation decisions • Negative descriptions of financial management, procurement practices or audits • But code “No” if: • Government takes quick action • ICR describes bureaucratic incompetence • The problem is a lack of counterpart funding • The problem is the reallocation of other resources in budget

12. ICRs • Project Lending – investment projects with a clear constituency (perhaps national) • Non-Project Lending – budgetary support, structural adjustment, technical assistance, etc.

13. Evidence of Capture

14. Country Characteristics and Capture Difference-in-means tests do not take account of repeat country-year observations.

15. Key Explanatory Variable: Level of Targeting • One city • Multiple cities • One region • Multiple regions • Rural sector • Urban sector • Social group • Business/industry • Nationwide • Code as a scale (but order is not clear) • Code as categorical (highly targeted, partially targeted, not targeted) • Code as dichotomous (highly targeted vs. not)

17. Geographic vs. Non-Geographic vs. Nationwide Pearson chi-squared p < 0.97

18. Single Cities/Single Regions vs. Other Projects Pearson chi-squared p < 0.04

19. Concentrated Projects vs. Other Projects Pearson chi-squared p < 0.01

20. High Corruption Countries (control of corruption < median) Low Corruption Countries (control of corruption > median)

21. IDA Projects IBRD and Blend Projects

22. Robust standard errors clustered on country.

23. Summary • Original dataset of capture in 598 World Bank-funded investment projects • At project level, very preliminary evidence that more specific targeting reduces capture, even controlling for some other relevant factors

24. Future Directions • Code additional years of data; test theory on new years using induced coding of explanatory variable • Validity checks of outcome variable codings • Fuller models of factors predicting capture • Selection model accounting for World Bank’s strategic use of targeting

25. Extra Slides

26. Cross-Project Data on Corruption • Despite certain instances of corruption getting a lot of attention in the media, a broad search does not yield much information • Lexis-Nexis search on “World Bank AND project AND corruption” for the years 1997, 1998 and 1999 • 956 news stories (including duplicates) • < 10 mention a specific project

27. Capture and Project Ratings

30. Capture and Project Characteristics

31. Capture and Source of World Bank Funds

32. Countries with High Rates of Capture

33. Countries with Low Rates of Capture