How does the MDB cross-debarment system curb corruption? - From the perspective of deterrence theory

The cross-debarment system established by multilateral development banks (MDBs) plays an instrumental role in combating corruption by deterring misconduct among contractors. Yet, the extent of its deterrent effect remains underexplored. This study aims to bridge the existing literature gap by employing quantitative methods to assess the efficacy of the cross-debarment system and its impact on curbing corruption. It explores the correlation between specific attributes derived from the deterrence theory and the outcomes of enforcement actions, particularly examining the likelihood of debarment for firms versus individuals. The findings reveal significant correlations between the outcome variable and the three explanatory variables. Prohibited practice and the Corruption Perception Index (CPI) are found to have a substantial impact, whereas the length of cross-debarment does not exhibit significant explanatory power. The odds of debarment indicate that firms involved in fraudulent activities are less likely to be cross-debarred compared to those involved in corrupt practices, with the reverse being true for individuals. A slight increase in debarment likelihood with higher CPI scores suggests that firms in less corrupt jurisdictions are more closely scrutinized for cross-debarment enforcement. Additionally, the study categorizes entities to explore variations in cross-debarment likelihood based on the nature of violations and perceived corruption levels in jurisdictions. This paper also offers recommendations aimed at further enhancing the capacity of the cross-debarment system to deter corruption in MDB operations.