Corruption, Democracy, and Privately Financed Infrastructure

AuthorAnthony M. Bertelli,Eleanor Florence Woodhouse,Valentina Mele
Date01 March 2021
Published date01 March 2021
Subject MatterArticles
Administration & Society
2021, Vol. 53(3) 327 –352
© The Author(s) 2020
Article reuse guidelines:
DOI: 10.1177/0095399720944548
Corruption, Democracy,
and Privately Financed
Anthony M. Bertelli1,2 , Valentina Mele1,
and Eleanor Florence Woodhouse3
Do political institutions moderate the influence of corruption on privately
financed infrastructure projects? We argue that electoral competition
incentivizes politicians to monitor bureaucratic corruption and focus on
the public benefits of projects. Without such incentives, corruption is not
monitored and the private benefits of bribes and favorable contract terms
are responsible for increasing numbers of projects. Studying 116 countries
between 1984 and 2012, we find that as public-sector corruption increases
in democracies, no change in the number of projects is observed, while
more projects emerge in non-democracies as corruption worsens.
public–private partnerships, infrastructure, economic development, electoral
Partnership agreements between government and the private sector are now
used in more than 134 countries and contribute 15% to 20% of total infra-
structure investment (World Bank, 2014). They have enjoyed sustained sup-
port from international organizations. While widely adopted in developing
countries, concerns about the fit of these privately financed projects with a
1Bocconi University, Milan, Italy
2Pennsylvania State University, PA, USA
3University College London, London, UK
Corresponding Author:
Anthony M. Bertelli, Department of Social and Political Sciences, Bocconi University,
Via Röntgen, 1, 20136 Milan, Italy.
944548AASXXX10.1177/0095399720944548Administration & SocietyBertelli et al.
328 Administration & Society 53(3)
global agenda on sustainable development are emerging (United Nations
Department of Economic and Social Affairs, 2016). There is consensus on
the claims that private financing is no panacea, that “one-size-fits-all”
approaches are not adequate, and that political and regulatory risks—particu-
larly corruption—should be assessed and mitigated. According to the World
Economic Forum (2015), corruption represents a regulatory risk that applies
throughout the life cycle of a project. The common denominator in these
reports and policy briefs is an awareness that partnerships do not occur in a
vacuum; they call for empirical studies that do not ignore the institutional
settings in which projects are embedded. How do political institutions shape
the influence of corruption on the adoption of privately financed infrastruc-
ture projects? We introduce and provide empirical support for a theory that
electoral competition increases the cost of corruption for private partners and
incentivizes politicians to focus on providing projects with public benefits,
thus shaping the number of these projects at the national level.
Investment in infrastructure has been shown to have a positive effect on
aggregate economic performance (Aschauer, 1989a, 1989b; Gramlich,
1994; Röller & Waverman, 2001) and trade (Francois & Manchin, 2013).
Consequently, developing countries have been encouraged to invest heavily
in public infrastructure and to foster private involvement in such invest-
ment. For example, the World Bank (2008) describes investment in urban
transport infrastructure as “one of the best ways to promote rural develop-
ment” and private involvement in such investments as a way “to improve
management skills, increase operating efficiency, and impose market disci-
pline” (p. 3). However, recent studies have shown that investment in infra-
structure is not unequivocally positive and can generate negative spillovers
(Ottaviano, 2008; Puga, 2002).
The interplay between weak political institutions and corruption can
work against any development-boosting benefits of investment in public
infrastructure (Flyvbjerg, 2009; Pickrell, 1992). For example, if a transition-
ing economy has a reputation for public-sector corruption, private interest in
public contracts may be driven by the prospect of exchanging bribes for
favorable contract terms (Auriol & Picard, 2013), rather than a desire to col-
laborate on a legitimate and productive project. Indeed, a “wagon wheel
effect” (Berkovich, 2015) can ensue, whereby in corrupt contexts, pouring
more funds into a given policy area can lead to less effective outcomes.
Well-functioning democratic political institutions have been broadly shown
to strengthen economic performance and to stimulate development
(Acemoglu & Robinson, 2012; Knack & Keefer, 1995). We explore how the
extent to which infrastructure projects are performed via partnerships is
affected by the interaction of an essential element of democratic politics,

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