Corruption is a pervasive challenge for development. We provide empirical evidence that political corruption can impact resource allocation even in programs where politicians have no official role in allocation decisions. Using data from the bidding process for a major rural road construction programme in India – the Pradhan Mantri Gram Sadak Yojana (PMGSY) – we show that contractors benefit when politicians they are connected to – as measured by shared surnames – win office. Our regression discontinuity design exploits close elections to identify the causal effect of a politician coming to power on the composition of contractors winning road construction contracts in their constituency. Relative to the previous term, the share of contractors whose name matches that of the winning politician increases by 63%. Politicians appear to be intervening in the allocation of contracts on behalf of members of their own network, a striking fact given that politicians have no official role in making contracting decisions. Regression discontinuity estimates at the road level show that this political interference raises the cost of road construction, and has no clear offsetting benefits in terms of efficiency or quality.
Lehne, J.; Shapiro, J.N.; Vanden Eynde, O. Building connections: political corruption and road construction in India. International Growth Centre (IGC), London, UK (2016) 50 pp.