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The Political Economy of Multilateral Lending to European Regions

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  • Zareh Asatryan
  • Annika Havlik

Abstract

We study the political economy of allocation decisions within a major state investment bank. Our focus is the European Investment Bank (EIB) - "The Bank of the EU" - which is the largest multilateral lending (and borrowing) institution in the world. We collect (and make available) information on the regions of origin of about 500 national representatives at the EIB's Board of Directors - the decisive body for loan approvals - since its foundation in 1959 and show that a representative's appointment increases the probability of her sub-national region receiving a loan by about 17 percentage points. This "home-bias" effect is driven by large loans financing infrastructure projects. We provide several pieces of evidence, which are consistent with the hypothesis that home-bias lending may lead to resource misallocation, however we cannot conclusively demonstrate this case of economic inefficiency.

Suggested Citation

  • Zareh Asatryan & Annika Havlik, 2019. "The Political Economy of Multilateral Lending to European Regions," EconPol Working Paper 35, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    • Handle: RePEc:ces:econwp:_35
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    Cited by:

    1. Andreas Dür & Christoph Moser & Gabriele Spilker, 2020. "The political economy of the European Union," The Review of International Organizations, Springer, vol. 15(3), pages 561-572, July.
    2. Asatryan, Zareh & Baskaran, Thushyanthan & Hufschmidt, Patrick & Stöcker, Alexander, 2021. "Regional favoritism and human capital accumulation in Africa," ZEW Discussion Papers 21-030, ZEW - Leibniz Centre for European Economic Research.
    3. Momi Dahan & Itamar Yakir, 2022. "Revealed political favoritism: evidence from the allocation of state lottery grants in Israel," Public Choice, Springer, vol. 190(3), pages 387-406, March.
    4. Stephan Schneider & Sven Kunze, 2021. "Disastrous Discretion: Ambiguous Decision Situations Foster Political Favoritism," KOF Working papers 21-491, KOF Swiss Economic Institute, ETH Zurich.
    5. Asatryan, Zareh & Baskaran, Thushyanthan & Birkholz, Carlo & Hufschmidt, Patrick, 2023. "Favoritism by the governing elite," ZEW Discussion Papers 23-053, ZEW - Leibniz Centre for European Economic Research.
      • Asatryan, Zareh & Baskaran, Thushyanthan & Birkholz, Carlo & Hufschmidt, Patrick, 2023. "Favoritism by the governing elite," Ruhr Economic Papers 1029, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • G2 - Financial Economics - - Financial Institutions and Services

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