We study the political economy of allocation decisions within a major state investment bank. Our focus is the European Investment Bank (EIB) - "The Bank of the EU" - which is the largest multilateral lending (and borrowing) institution in the world. We study the behavior of about 500 national representatives at the EIB's Board of Directors - the bank's decisive body for loan approvals - and show that a representative's appointment increases the probability that the sub-national region where she works receives a loan by about 17 percentage points. This "home-bias" effect is driven by large loans financing infrastructure projects. We discuss several pieces of evidence, which are consistent with the hypothesis that this home-bias lending may be due to favoritism, however, we cannot conclusively demonstrate this case of resource misallocation.
Asatryan, Zareh and Annika Havlik (2020), The Political Economy of Multilateral Lending to European Regions, The Review of International Organizations 15, 707-740. Download