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The Political Economy of International Finance Corporation Lending

Listed author(s):
  • Dreher, Axel
  • Richert, Katharina

The bulk of International Finance Corporation (IFC) lending benefits companies from rich countries, and projects in countries with middle income. Large conglomerates such as Lidl or M�venpick have been among its direct beneficiaries. This contrasts to some extent with the IFC's official mandate, which is to finance poverty-reducing projects for which private capital is not available on reasonable terms. We investigate the drivers of this mismatch. According to our theory, the governments of industrialized countries where borrowing companies are based form coalitions with governments of middle-income countries where the projects are implemented. We therefore expect preferential treatment to be most pronounced when the representatives of both the recipient's and the company's countries are best able to collude in exerting their influence. We argue that this will be the case when both countries' governments are represented among the IFC's Board of Executive Directors, and when they have extraordinary clout with major IFC shareholders. Using data for more than 3000 IFC projects over the 1995-2015 period we show that the (joint) influence of these countries helps them to receive a disproportional share of IFC funding.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 12290.

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Date of creation: Sep 2017
Handle: RePEc:cpr:ceprdp:12290
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  1. Fratzscher, Marcel & Reynaud, Julien, 2011. "IMF surveillance and financial markets--A political economy analysis," European Journal of Political Economy, Elsevier, vol. 27(3), pages 405-422, September.
  2. Dreher, Axel & Sturm, Jan-Egbert & Vreeland, James Raymond, 2009. "Development aid and international politics: Does membership on the UN Security Council influence World Bank decisions?," Journal of Development Economics, Elsevier, vol. 88(1), pages 1-18, January.
  3. Roland Vaubel & Axel Dreher & Uğurlu Soylu, 2007. "Staff growth in international organizations: A principal-agent problem? An empirical analysis," Public Choice, Springer, vol. 133(3), pages 275-295, December.
  4. Thomas Barnebeck Andersen & Henrik Hansen & Thomas Markussen, 2006. "US politics and World Bank IDA-lending," Journal of Development Studies, Taylor & Francis Journals, vol. 42(5), pages 772-794.
  5. Nathan M. Jensen, 2008. "Introduction to Nation-States and the Multinational Corporation: A Political Economy of Foreign Direct Investment," Introductory Chapters,in: Nation-States and the Multinational Corporation: A Political Economy of Foreign Direct Investment Princeton University Press.
  6. Axel Dreher & Matthew Gould & Matthew Rablen & James Vreeland, 2014. "The determinants of election to the United Nations Security Council," Public Choice, Springer, vol. 158(1), pages 51-83, January.
  7. Dreher, Axel & Sturm, Jan-Egbert & Vreeland, James Raymond, 2009. "Global horse trading: IMF loans for votes in the United Nations Security Council," European Economic Review, Elsevier, vol. 53(7), pages 742-757, October.
  8. Paul Novosad and Eric Werker, 2014. "Who Runs the International System? Power and the Staffing of the United Nations Secretariat - Working Paper 376," Working Papers 376, Center for Global Development.
  9. Head, Keith & Mayer, Thierry & Ries, John, 2010. "The erosion of colonial trade linkages after independence," Journal of International Economics, Elsevier, vol. 81(1), pages 1-14, May.
  10. Christopher Kilby, 2011. "Informal influence in the Asian Development Bank," The Review of International Organizations, Springer, vol. 6(3), pages 223-257, September.
  11. Barbara Koremenos, 2013. "What’s left out and why? Informal provisions in formal international law," The Review of International Organizations, Springer, vol. 8(2), pages 137-162, June.
  12. Axel Dreher & Katharina Michaelowa, 2008. "The political economy of international organizations," The Review of International Organizations, Springer, vol. 3(4), pages 331-334, December.
  13. Kevin Morrison, 2013. "Membership no longer has its privileges: The declining informal influence of Board members on IDA lending," The Review of International Organizations, Springer, vol. 8(2), pages 291-312, June.
  14. Dippel, Christian, 2015. "Foreign aid and voting in international organizations: Evidence from the IWC," Journal of Public Economics, Elsevier, vol. 132(C), pages 1-12.
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  20. Kilby, Christopher, 2015. "Assessing the impact of World Bank preparation on project outcomes," Journal of Development Economics, Elsevier, vol. 115(C), pages 111-123.
  21. repec:spr:revint:v:12:y:2017:i:2:d:10.1007_s11558-017-9272-5 is not listed on IDEAS
  22. Frank-Oliver Aldenhoff, 2007. "Are economic forecasts of the International Monetary Fund politically biased? A public choice analysis," The Review of International Organizations, Springer, vol. 2(3), pages 239-260, September.
  23. Humphrey, Chris & Michaelowa, Katharina, 2013. "Shopping for Development: Multilateral Lending, Shareholder Composition and Borrower Preferences," World Development, Elsevier, vol. 44(C), pages 142-155.
  24. J. Broz, 2008. "Congressional voting on funding the international financial institutions," The Review of International Organizations, Springer, vol. 3(4), pages 351-374, December.
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  27. Ashwin Kaja & Eric Werker, 2010. "Corporate Governance at the World Bank and the Dilemma of Global Governance," World Bank Economic Review, World Bank Group, vol. 24(2), pages 171-198, June.
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