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The politics of contract allocation in the World Bank

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Abstract

Scholarship on informal politics in multilateral aid organizations investigates all stages of the allocation process - from project identification to aid disbursement and project evaluation. Yet, one area remains almost entirely overlooked in the literature - allocation of aid-financed contracts. This article aims to address the shortcoming of the existing research and develops a theory of contract allocation in a prominent multilateral aid organization – the World Bank. The theoretical argument explores the relationship between formal procurement arrangements and recipients’ control over contract allocation, and the role of this relationship in explaining patterns of contract allocation. My empirical analyses using data on the World Bank’s contracts provide evidence of recipients’ ability to allocate contracts in favor of domestic companies, as well as bilateral aid donors.

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Notes

  1. 1.

    Regional development banks, for instance, rely on international competitive bidding. AfDB states that “An “Open Competitive Bidding (OCB)” process with wide and free bidding notification, and no restriction on participation of eligible bidders should normally be used” (AFDB 2015: 18). Asian Development Bank has a similar requirement: “Open competition is the basis for efficient public procurement… In most cases, international competitive bidding (ICB), properly administered, and with the allowance for preferences for domestically manufactured goods and, where appropriate, for domestic contractors for works under prescribed conditions is the most appropriate method” (ADB 2015: 2). The IADB and EBRD follow nearly identical procurement rules, which emphasize ICB as the main procurement method.

  2. 2.

    The criteria for calculating the ICB threshold include foreign companies’ interest in a given market and the size of the market. See the World Bank’s Procurement Policies and Procedures for more detail (http://go.worldbank.org/9P6WS4P5E1).

  3. 3.

    Detailed information on the World Bank’s policies regarding procurement of goods and services is available in the World Bank’s Standard Bidding Document for Procurement of Goods, and Standard Bidding Document for Procurement of Services (http://www.worldbank.org/en/projects-operations/products-and-services/brief/procurement-policies-and-guidance#standarddocuments).

  4. 4.

    The database can be found at http://go.worldbank.org/GM7GBOVGS0.

  5. 5.

    An alternative approach is to include all countries as potential bidders. However, a shortcoming of this approach is that it introduces a large number of “irrelevant” bidder countries, i.e., countries that did not indicate their interest in receiving a contract by submitting a bid, and hence their probability of winning a contract is zero.

  6. 6.

    The appendix provides summary statistics and data sources for all variables.

  7. 7.

    According to the World Bank’s procurement guidelines, “NCB may be the most appropriate method of procurement where foreign bidders are not expected to be interested because (a) of the size and value of the contract, (b) works are scattered geographically or spread over time, (c) works are labor intensive, or (d) the goods, works, and non-consulting services are available locally at prices below the international market. NCB procedures may also be used where the advantages of ICB are clearly outweighed by the administrative or financial burden involved” (World Bank 2014: 27–28).

  8. 8.

    Standard International Trade Classification.

  9. 9.

    The sectors are based on the SITC categories: http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=28.

  10. 10.

    The region of Africa, for instance, has five subregions: Eastern, Middle, Northern, Southern and Western Africa.

  11. 11.

    There are alternative measures of corruption. One is Control of Corruption, which is part of the World Bank’s Worldwide Governance Indicators. This variable is coded to gauge “perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as “capture” of the state by elites and private interests” (Kaufmann et al. 2011, 4). The range of this corruption measure is from −2.5 (most corrupt countries) to 2.5 (least corrupt countries). The World Bank’s and ICRG’s corruption variables are highly correlated – at .61 in the case of recipient countries, and at .83 in the case of bidding countries. Another alternative is Transparency International’s indicator, Corruption Perceptions Index. This measure reflects perceptions of public sector corruption on a scale of 0 (highly corrupt) to 100 (very clean). This measure is also highly correlated with the ICRG’s corruption index: at .49 in the case of recipient countries, and at .82 in the case of bidding countries.

  12. 12.

    These models are available in the appendix.

  13. 13.

    I thank an anonymous reviewer for pointing out the conditional effect.

  14. 14.

    These results based on pooled contract data may be somewhat misleading if the US government chooses to exercise informal influence in some sectors, where powerful domestic interests exist, but not in others. To probe this possible sectoral variation in American informal influence, I replicate model 1 of Table 2 on contracts within 10 individual sectors. These results, reported in the appendix, show that US companies are less likely to win contracts in the following five categories: education; finance; health and social services; industry and trade; public administration and law. At the same time, there is no statistically significant relationship between the US dummy and contract award in three areas: agriculture; transport; and water, sanitation and flood protection. Finally, two sectors exhibit contract allocation patterns consistent with the expectation of informal influence in favor of US companies: i.e., energy and mining; and information and communication. The latter results reach statistical significance at conventional levels.

  15. 15.

    Logit models of ICB choice are reported in the appendix.

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Correspondence to Elena V. McLean.

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Appendix

Appendix

Tables 4, 5, 6 and 7

Table 4 Descriptive statistics
Table 5 Logit models of choosing international competitive bidding as contract award method
Table 6 Models of contract allocation (with country fixed effects)
Table 7 Models of contract allocation (by sector)

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McLean, E.V. The politics of contract allocation in the World Bank. Rev Int Organ 12, 255–279 (2017) doi:10.1007/s11558-017-9272-5

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Keywords

  • World Bank
  • Multilateral aid
  • Procurement

JEL classifications

  • F35
  • F53
  • F55
  • F59