Foreign aid and power play: Political cycles in world bank’s procurement allocation

Abstract

This paper examines the existence of political cycles in the awarding of World Bank procurement contracts around elections. We analyze elections in the home country of firms winning these contracts, distinguishing between firms based in the aid recipient country (i.e., domestic firms) and those from other supplier countries (i.e., foreign firms). Our findings indicate that domestic firms are more likely to secure larger contracts around elections in their home country, especially when corporate donations to candidates are allowed. Additionally, our results reveal an increase in contract sizes awarded to foreign firms before elections in their home country. This cross-border political cycle appears to be driven by strong aid partnerships and historical colonial ties between the supplier and recipient countries. These findings reveal a political dimension in procurement dynamics with potential implications for development resource allocation. Understanding these patterns can help enhance the transparency and effectiveness of aid-funded contracting.