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Crossing the threshold : an analysis of IBRD graduation policy

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  • Heckelman, Jac C.
  • Knack, Stephen
  • Rogers, F. Halsey

Abstract

According to World Bank policy, countries remain eligible to borrow from the International Bank for Reconstruction and Development until they are able to sustain long-term development without further recourse to Bank financing. Graduation from the Bank is not an automatic consequence of reaching a particular income level, but rather is supposed to be based on a determination of whether the country has reached a level of institutional development and capital-market access that enables it to sustain its own development process without recourse to Bank funding. This paper assesses how International Bank for Reconstruction and Development graduation policy operates in practice, investigating what income and non-income factors appear to have influenced graduation decisions in recent decades, based on panel data for 1982 through 2008. Explanatory variables include the per-capita income of the country, as well as measures of institutional development and market access that are cited as criteria by the graduation policy, and other plausible explanatory variables that capture the levels of economic development and vulnerability of the country. The authors find that the observed correlates of Bank graduation are generally consistent with the stated policy. Countries that are wealthier, more creditworthy, more institutionally developed, and less vulnerable to shocks are more likely to have graduated. Predicted probabilities generated by the model correspond closely to the actual graduation and de-graduation experiences of most countries (such as Korea and Trinidad and Tobago), and suggest that Hungary and Latvia may have graduated prematurely -- a prediction consistent with their subsequent return to borrowing from the Bank in the wake of the global financial crisis.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5531.

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Date of creation: 01 Jan 2011
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Handle: RePEc:wbk:wbrwps:5531

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Keywords: Economic Theory&Research; Emerging Markets; Banks&Banking Reform; Labor Policies; Debt Markets;

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References

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  1. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  2. Daron Acemoglu & Simon Johnson & James A. Robinson & Pierre Yared, 2008. "Income and Democracy," American Economic Review, American Economic Association, vol. 98(3), pages 808-42, June.
  3. Christopher Kilby, 2006. "Donor influence in multilateral development banks: The case of the Asian Development Bank," The Review of International Organizations, Springer, vol. 1(2), pages 173-195, June.
  4. Dreher, Axel & Sturm, Jan-Egbert & Vreeland, James Raymond, 2009. "Development aid and international politics: Does membership on the UN Security Council influence World Bank decisions?," Journal of Development Economics, Elsevier, vol. 88(1), pages 1-18, January.
  5. Ahmed Mushfiq Mobarak, 2005. "Democracy, Volatility, and Economic Development," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 348-361, May.
  6. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
  7. Witold Jerzy Henisz, 2004. "Political Institutions and Policy Volatility," Economics and Politics, Wiley Blackwell, vol. 16(1), pages 1-27, 03.
  8. Rajkumar, Andrew Sunil & Swaroop, Vinaya, 2008. "Public spending and outcomes: Does governance matter?," Journal of Development Economics, Elsevier, vol. 86(1), pages 96-111, April.
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Cited by:
  1. Lin, Justin Yifu & Rosenblatt, David, 2012. "Shifting patterns of economic growth and rethinking development," Policy Research Working Paper Series 6040, The World Bank.
  2. Im, Fernando Gabriel & Rosenblatt, David, 2013. "Middle-income traps : a conceptual and empirical survey," Policy Research Working Paper Series 6594, The World Bank.

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