Introduction
In response to the pandemic, governments increased their healthcare and economic relief expenditures. To expedite the allocation of essential resources, they also relaxed accountability standards. Unfortunately, these practices translated into new corruption opportunities (Rose-Ackerman,
2021). While not all of these opportunities resulted in corruption practices, the inefficiencies in public procurement processes likely facilitated occurrences of fraud, bribery, and embezzlement. Notably, instances of these crimes often surface years after the implicated politicians have left office. As a result, researchers studying the effects of the COVID-19 pandemic in the short term have mainly examined the risk of corruption as a proxy indicator for actual corruption (Abdou et al.,
2021; Blanco Varela et al.,
2022; Cacciatore et al.,
2022; Gallego et al.,
2021).
Several criminology theories provide valuable theoretical frameworks for understanding the relation between disasters — such as a pandemic — and corruption. These theories include the rational choice theory and the routine activity theory. The rational choice theory focuses on how offenders decide whether to commit corruption by weighing the costs (e.g. likelihood of detection and punishment) and benefits (e.g. potential yield) associated with it; if the benefits outweigh the costs during a disaster, rational criminals are likely to commit corruption (Becker,
1968; Cornish & Clarke,
1986). Routine activity theory highlights the suitable targets for corruption created by disasters and the absence of capable guardianship (Cohen & Felson,
1979). Both theories provide a basic conceptualization of the linear relation between disasters and corruption, in which the latter increases after a disaster, persistently (Frailing & Harper,
2017).
Similarly, other criminology theories — such as the resilience of crime theory — provide a structure that relates disasters and corruption non-linearly. In particular, disasters bring an influx of money to help affected individuals; unfortunately, public officials need to relax accountability standards to support the victims in the short term (Frailing & Harper,
2017). In the medium term, public officials recover their regulatory capabilities and corruption drops to pre-disaster levels (Frailing & Harper,
2017). Said theory suggests an inverted U-shape relation between disasters and corruption.
The monitoring of public finance management is important in emerging economies, which are particularly susceptible to corruption during times of emergencies. Unlike high-income countries with robust institutions, developing economies often lack the institutional and social practices necessary to deter corruption under challenging conditions (Peyton & Belasen,
2012). Additionally, crony capitalism, which is more prevalent in emerging economies, thrives during extraordinary events, where politicians may reciprocate favors to their cronies, who aim to strengthen their market dominance under shifting circumstances (Enderwick,
2005).
This paper examines the effect of the COVID-19 pandemic on risk of corruption in Mexico using data of 378,000 public acquisitions made by 64 institutions from the Mexican Federal Government. These acquisitions represent approximately 75% of all public acquisition allocations during the period between 2018 to 2020. Throughout this period, these 64 institutions consistently awarded contracts on a monthly basis, ensuring a balanced panel dataset for the analysis. The primary focus of this investigation lies in the assessment of the ratio between the value of contracts assigned through discretionary non-competitive mechanisms and the total value of contracts per institution. This ratio, referred to as the Discrete-Contracts-Value-to-Budget (DCVB), serves as the main outcome of interest.
To estimate the effect of the COVID-19 pandemic on risk of corruption two econometric methodologies are used: a difference-in-differences strategy and an event-study design. These methodologies have been implemented to study the effects of the COVID- 19 pandemic on several socioeconomic variables such as crime, mental health, and domestic violence (Balmori de la Miyar et al.,
2021; Brodeur et al.,
2021; Leslie & Wilson,
2020). Further two potential mechanisms to elucidate the observed effects are examined: (1) the influence of specific institutions, with particular attention to the Mexican Army, which has expanded its involvement across various sectors during the present government (Berg et al.,
2023), and (2) the pandemic’s impact on two factors previously linked to corruption: the market concentration among providers and irregularities on the disclosure of the contract’s procedure information (Blanco Varela et al.,
2022).
The present study contributes to the recent body of literature investigating the effect of the COVID-19 pandemic on corruption (Abdou et al.,
2021; Almada et al.,
2022; Blanco Varela et al.,
2022; Cacciatore et al.,
2022; Gallego et al.,
2021; Rose-Ackerman,
2021). Specifically, this paper examines several key aspects for the case of Mexico, which are consistent with findings in other settings. First, it analyzes whether there is an increase in the average value of discretionary non-competitive contracts during the pandemic (Gallego et al.,
2021). Second, it tests whether there is an increase in the risk of corruption in non-healthcare sectors, which are generally overlooked given the nature of the pandemic (Abdou et al.,
2021). Finally, it examines whether there is evidence of an increase in market concentration among government providers (Blanco Varela et al.,
2022). The insights of such analysis can be useful for policy makers tasked with overseeing audits aimed at scrutinizing public acquisitions made during the pandemic, proving valuable insights to mitigate corruption risks in the context of government spending during extraordinary events.
The remainder of this paper proceeds as follows. Section
2 presents the related literature. Section
3 describes the empirical strategy. Sections
4 and
5 contain the results and a discussion, respectively. Section
6 concludes.
During emergencies, such as the COVID-19 pandemic, governments boost spending on healthcare and economic relief while simultaneously relaxing accountability measures. The extent of corruption opportunities that arise in such circumstances may vary depending on the developmental status of institutions. Acknowledging that the professional integrity of markets and government agencies can play a pivotal role in mitigating corruption opportunities (Rose-Ackerman,
2021), multilateral organizations, like the International Monetary Fund or the World Bank, often incorporate anti-corruption measures in agreements for emergency aid packages (Rose-Ackerman,
2021). However, despite these efforts, instances of potential corruption during the pandemic have been identified in various countries and settings.
For instance, in the United States, multimillion-dollar government contracts were awarded to companies with little experience producing protective equipment for COVID- 19 (Gabrielson et al.,
2020). Similarly, in Colombia, the government provided food boxes to families affected by the lockdown, but the price paid by the government for these boxes was twice the market price (Faiola & Herrero,
2020). Likewise, in Mexico, the Cyber Robotics company sold ventilator equipment at a price of 1.5 million MX pesos each, whereas the Mexican Federal Government purchased similar ventilators at nearly half that price during the same week (Sánchez-Ley & Olmos,
2020). It is worth noting that, at that time, the Cyber Robotics company was owned by the son of a politician who also served as the CEO of the Federal Electricity Commission, a state-owned utility company in Mexico (Sánchez-Ley & Olmos,
2020).
In conjunction with individual case reports of corruption, there is a growing body of literature that identifies an increase in corruption as a consequence of the COVID- 19 pandemic, although the literature remains small. Specifically, Gallego et al. (
2021) finds that Colombian municipalities that were already susceptible to corruption prior to the pandemic, responded to the crisis by significantly increasing the average value of discretionary non-competitive contracts. Using a differences-in-differences strategy, the authors point to an increase of 7.5% in the average value of discretionary contracts (Gallego et al.,
2021).
In this line of research, Blanco Varela et al. (
2022) examines the expenditure patterns in four deputations of Galicia, Spain, namely Coruña, Lugo, Ourense, and Pontevedra, to investigate the impact of the COVID-19 pandemic. The study focuses on the utilization of "minor contracts," a procedure characterized by a lack of publicity or competitive bidding and associated with higher corruption risks. The findings indicate that, in Spain, the percentage of expenditure on minor contracts relative to the total budget only increased in the Ourense deputation, rising from 8.6% in 2019 to 10.5% in 2020. Moreover, this increased spending on minor contracts in Ourense coincided with a greater concentration of government providers (Blanco Varela et al.,
2022).
Likewise, Cacciatore et al. (
2022) focus on public procurement concerning four economic relief policies initiated by the Italian government during the COVID-19 pandemic. These policies encompassed funding support for businesses, temporary suspension of work, one-time allowances for self-employed workers, and emergency income aid. Despite witnessing an increase in accountability safeguards over time, the evidence from Italy reveals that the economic recovery policies did not comply with anti-corruption indicators (Cacciatore et al.,
2022).
Furthermore, additional research conducted by Almada et al. (
2022) investigates fiscal transparency on web portals of state governments in Brazil during the COVID- 19 pandemic. The results demonstrate a divergence across states, largely driven by factors such as the level of development and average income. In a related paper, Abdou et al. (
2021) estimates the pandemic’s impact on the risk of corruption in Romania, using a composed risk index (CRI) derived from eleven corruption-related indicators. The findings show an increase in the CRI for COVID-19-related goods, which increased from 0.4 to 0.6, representing an increase of 50% in the risk of corruption. Notably, in Romania, non-healthcare products, where relaxed regulations did not apply, also witnessed an expansion in their CRI scores (Abdou et al.,
2021). Finally, an interconnected body of literature explores the influence of various types of disasters on public procurement, consistently indicating a higher prevalence of corruption (Sobel & Leeson,
2008; Yamamura,
2014).
Data and Methods
Data
This study employs publicly available data from all types of public contracts executed by the Mexican Federal Government, spanning acquisitions, leases, public works, and services. The data is available through the online system
CompraNet. In particular, this paper uses the systematized CompraNet data, which has been organized by the Mexican Institute for Competitiveness (IMCO). This dataset provides crucial contract characteristics, including the contract value, the allocating public institution, the provider’s name, contract start and end dates, allocation mechanisms employed, among other characteristics (IMCO,
2022).
In Mexico, public contracts are allocated through three mechanisms: public auctions, auctions by invitation, and direct allocation. The law favors the use of public auctions. However, exceptions within the law allow public institutions to exercise their discretion and opt for either auctions by invitation or direct allocation methods in certain cases.
The data is aggregated at the institution-month level for the 2018–2020 period. To obtain a balanced panel, only institutions that allocated at least one contract every month from 2018 through 2020 are maintained. Thus, the data gathers 378,000 public acquisitions, attributed to 64 institutions within the Mexican Federal Government. The contracts granted by these 64 institutions account for approximately 75% of all public acquisition allocations during the period under analysis. Thus, the final sample comprises 2,304 observations (64 institutions × 12 months × 3 years).
Table
1 provides an overview of summary statistics. The average contract value is approximately 5.06 million MX pesos (roughly 250,000 US dollars). On average, each institution allocates 164.46 contracts monthly. When differentiating these values between healthcare and non-healthcare institutions, healthcare institutions assign smaller contracts with an average value of 2.01 million MX pesos. Conversely, non-healthcare institutions assign contracts with an average value of 5.84 million MX pesos.
Table 1
Descriptive Statistics
Average contract value (millions MX pesos) | 5.06 | 2.01 | 5.84 |
Number of contracts | 164.46 | 402.48 | 103.79 |
DCVB1 | 0.700 | 0.665 | 0.709 |
N | 2304 | 468 | 1836 |
In general, the use of discretion in allocating contracts is high. In any given month, approximately 70% of the total contract value is allocated through mechanisms that involve hiring discretion, encompassing both auction by invitation and direct allocation methods. When looking at these numbers by type of institution, there is a marginal variation of five percentage points. Healthcare institutions exhibit a 66% utilization of discretionary mechanisms, whereas non-healthcare institutions demonstrate a slightly higher proportion at 71%.
Discussion
The results of this study contribute to the existing empirical evidence examining the impact of the COVID-19 pandemic on the risk of corruption. First, the case of Mexico demonstrates an increase in the utilization of discretionary non-competitive contracts during the pandemic. This finding aligns with the observations made in Colombia regarding the usage of such contracts (Gallego et al.,
2021). Second, the risk of corruption has increased for non-healthcare institutions in Mexico, in contrast to the evidence from Romania, where corruption increased for both healthcare and non- healthcare goods after the pandemic (Abdou et al.,
2021). Third, the exploration of potential mechanisms found no evidence of influence from specific institutions, such as the Mexican Army, even though there is evidence of market concentration among providers in non-healthcare institutions, similar to the case in Spain (Blanco Varela et al.,
2022).
The disparities observed between Mexico and Romania could be attributed to differences in institutional development and the integrity of both market and government agencies (Rose-Ackerman,
2021). Alternatively, the variance in monitoring intensity, carried out by non-government organizations and media, for the government’s healthcare provision during the pandemic could play a role. An illustrative example of this monitoring is evident in the case of the ventilators purchased at an inflated price by the Mexican Federal Government from a company owned by the son of a politician who serves as the CEO of the Federal Electricity Commission (Sánchez-Ley & Olmos,
2020). Such monitoring efforts could potentially deter corrupt practices in the health sector, given the high probability of being exposed.
As for the limitations of the present research, one lies in the level of detail provided in the data. Unfortunately, it is not possible to differentiate whether auctions by invitation or direct allocation, were employed for legitimate reasons (e.g., specialized providers or urgent delivery needs) or for private rent-seeking purposes. Another limitation pertains to the inability to determine whether the increase in the risk of corruption translated into proven instances of fraud, bribery, or embezzlement.
Conclusion
This paper examines the effects of the COVID-19 pandemic on public contract allocation with hiring discretion. The results show that the pandemic increased the discrete-contracts-value-to-budget (DCVB) ratio. The effect was large, reaching an increase of 20% by the second month after the beginning of the pandemic. This increase persisted for four months before the allocation patterns returned to pre-pandemic levels. Contrary to expectation, the rise in the DCVB ratio was predominantly driven by changes in contract allocation within non-healthcare institutions, rather than healthcare institutions. Additionally, results suggest an increase in market concentration among government providers after the pandemic began, along with a higher proportion of contracts that disclosed procedural information later than the contract’s starting dates.
With the onset of the pandemic and the urgent investments needed in health infrastructure, an increase in the DCVB ratio for healthcare institutions was expected, particularly since the law allows discretion in hiring to expedite the process in times of crisis. Nevertheless, the results indicate that this increase was only present in non-healthcare institutions. Plausible reasons are: 1) a relatively reduced oversight in non-healthcare sectors during the pandemic, creating opportunities for discretionary hiring, 2) a higher level of professional integrity within healthcare institutions mitigating the risk of corruption (Rose-Ackerman,
2021), and 3) greater scrutiny by the media and non-government organizations over healthcare institutions during the pandemic.
From a policy perspective, Mexico’s Government Accountability Office (Auditoría Superior de la Federación) should take into account the elevated risk of corruption highlighted by the findings of this paper when conducting audits targeting public acquisitions made during the pandemic. Despite being counter-intuitive, the results suggest that the focus of these audits should be on non-healthcare institutions, even though much of the political debate surrounding the issue remains centered around healthcare institutions.
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.