Networked Corruption Risks in European Defense Procurement

Abstract

In this chapter we study corruption risks in EU defense procurement. Defense procurement has long been thought to present significant potential for corruption and state capture. Using a large dataset of contracts covering nearly ten years and applying an objective corruption risk indicator, we find strong empirical support for this hypothesis. In nearly all countries our corruption risk indicator is higher for military contracts than for contracts in general. By mapping national markets as complex networks, we find that risks are significantly clustered, suggesting potential islands of state capture. The centralization of corruption risk varies from country to country: in some corruption risk is significantly higher in the periphery, while in others it is significantly higher in the center of the market. We argue that network maps of procurement markets are an effective tool to highlight hotspots of corruption risk, especially in the overall high risk context of defense contracting.