Corruption, Democracy, and Privately Financed Infrastructure

• Author: Anthony M. Bertelli,Eleanor Florence Woodhouse,Valentina Mele
• Date: 01 March 2021
• Published date: 01 March 2021
• DOI: 10.1177/0095399720944548
• Subject Matter: Articles

https://doi.org/10.1177/0095399720944548

Administration & Society

2021, Vol. 53(3) 327 –352

© The Author(s) 2020

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DOI: 10.1177/0095399720944548

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Article

Corruption, Democracy,

and Privately Financed

Infrastructure

Anthony M. Bertelli1,2 , Valentina Mele1,

and Eleanor Florence Woodhouse3

Abstract

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.

Keywords

public–private partnerships, infrastructure, economic development, electoral

competition

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.

Email: anthony.bertelli@unibocconi.it

944548AASXXX10.1177/0095399720944548Administration & SocietyBertelli et al.

research-article2020

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,