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Why is there Multilateral Lending?

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  • Dani Rodrik

Abstract

Why should multilateral lending exist in a world where private capital markets are well developed and governments have their own bilateral aid programs? If lending by the World Bank, IMF, and regional development banks has an independent rationale, it must rest on advantages generated by the multilateral nature of these institutions. There are in principle two such advantages. First, since information on the quality of investment environments in different countries is in many ways a collective good, multilateral agencies are in a better position to internalize the externalities that may arise. This creates a rationale for multilateral lending in terms of information provision, particularly in terms of monitoring of government policies in recipient countries. Second, as long as multilateral agencies retain some degree of autonomy from the governments that own them, their interaction with recipient countries, while official in nature, can remain less politicized than inter- governmental links. This in turn endows multilateral agencies with an advantage in the exercise of conditionality, (that is, in lending that is conditional on changes in government policies). Neither of these two potential advantages of multilateral lending has much to do with lending per se. However, multilateral lending may be required to make these agencies' tasks incentive compatible. The empirical analysis reveals little evidence that multilateral lending has acted as a catalyst for private capital flows.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5160.

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Date of creation: Jun 1995
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Publication status: published as Proceedings of the World Bank Annual Conference in Development Economics 19 95, World Bank, 1996.
Handle: RePEc:nbr:nberwo:5160

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  1. Diwan, I. & Rodrik, D., 1992. "External Debt, Adjustment, and Burden Sharing: A Unified Framework," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 73, International Economics Section, Departement of Economics Princeton University,.
  2. Martin Feldstein, 1994. "Tax policy and international capital flows," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 130(4), pages 675-697, December.
  3. Michael P. Dooley, 1994. "A Retrospective on the Debt Crisis," NBER Working Papers 4963, National Bureau of Economic Research, Inc.
  4. Barry Eichengreen, 1990. "Trends and Cycles in Foreign Lending," NBER Working Papers 3411, National Bureau of Economic Research, Inc.
  5. Claessens, S. & Gooptu, S., 1993. "Portfolio Investment in Developing Countries," World Bank - Discussion Papers, World Bank 228, World Bank.
  6. Gavin, Michael & Rodrik, Dani, 1995. "The World Bank in Historical Perspective," American Economic Review, American Economic Association, American Economic Association, vol. 85(2), pages 329-34, May.
  7. Jeremy Bulow & Kenneth Rogoff & Afonso S. Bevilaqua, 1992. "Official Creditor Seniority and Burden-Sharing in the Former Soviet Bloc," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 195-234.
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