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Are “New” Donors Challenging World Bank Conditionality?

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  • Hernandez, Diego

Abstract

This paper investigates whether World Bank conditionality is affected by the presence of “new” donors by using panel data for 54 African countries over the 1980–2013 period. Empirical results indicate that the World Bank delivers loans with significantly fewer conditions to recipient countries which are assisted by China. In fact these receive 15% fewer conditions for every percentage-point increase in Chinese aid. Less stringent conditionality is also observed in better off borrowers that are in addition funded by Kuwait and the United Arab Emirates, but this effect vanishes after the start of the new millennium. In contrast, World Bank conditionality is rarely affected by aid inflows from DAC donors, and when it is, conditionality is revised upward. These findings suggest that new donors might be perceived as an attractive financial option to which the World Bank reacts by offering credits less restrictively in order to remain competitive in the loan-giving market and thereby cope with excesses in the supply of development resources.

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  • Hernandez, Diego, 2017. "Are “New” Donors Challenging World Bank Conditionality?," World Development, Elsevier, vol. 96(C), pages 529-549.
    • Handle: RePEc:eee:wdevel:v:96:y:2017:i:c:p:529-549
    DOI: 10.1016/j.worlddev.2017.03.035
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    2. Dreher, Axel & Bluhm, Richard & Fuchs, Andreas & Parks, Bradley & Strange, Austin & Tierney, Michael, 2020. "Connective Financing - Chinese Infrastructure Projects and the Diffusion of Economic Activity in Developing Countries," CEPR Discussion Papers 14818, C.E.P.R. Discussion Papers.
    3. Krishna Chaitanya Vadlamannati & Yuanxin Li & Samuel Brazys & Alexander Dukalskis, 2019. "Building Bridges or Breaking Bonds? The Belt and Road Initiative and Foreign Aid Competition," Working Papers 201906, Geary Institute, University College Dublin.
    4. Kasper Vrolijk, 2021. "Industrial policy and structural transformation: Insights from Ethiopian manufacturing," Development Policy Review, Overseas Development Institute, vol. 39(2), pages 250-265, March.
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    6. Hongying Wang, 2021. "Regime Complexity and Complex Foreign Policy: China in International Development Finance Governance," Global Policy, London School of Economics and Political Science, vol. 12(S4), pages 69-79, May.
    7. Abreham Adera, 2024. "Chinese Aid Projects and Local Tax Attitudes: Evidence from Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 36(1), pages 102-134, February.
    8. Ann-Sofie Isaksson & Dick Durevall, 2023. "Aid and institutions: Local effects of World Bank aid on perceived institutional quality in Africa," The Review of International Organizations, Springer, vol. 18(3), pages 523-551, July.
    9. Silvia Marchesi & Tania Masi & Saumik Paul, 2021. "Project Aid and Firm Performance," Working Papers 479, University of Milano-Bicocca, Department of Economics, revised Sep 2021.
    10. Angelika J. Budjan & Andreas Fuchs, 2021. "Democracy and Aid Donorship," American Economic Journal: Economic Policy, American Economic Association, vol. 13(4), pages 217-238, November.
    11. Dreher, Axel & Fuchs, Andreas & Hodler, Roland & Parks, Bradley C. & Raschky, Paul A. & Tierney, Michael J., 2019. "African leaders and the geography of China's foreign assistance," Journal of Development Economics, Elsevier, vol. 140(C), pages 44-71.
    12. Mitchell Watkins, 2022. "Undermining conditionality? The effect of Chinese development assistance on compliance with World Bank project agreements," The Review of International Organizations, Springer, vol. 17(4), pages 667-690, October.
    13. Cormier, Benjamin, 2023. "Chinese or western finance? Transparency, official credit flows, and the international political economy of development," LSE Research Online Documents on Economics 115294, London School of Economics and Political Science, LSE Library.
    14. Hisham Aidi, 2018. "China’s Economic Statecraft in Africa," Policy notes & Policy briefs 1825, Policy Center for the New South.
    15. Eugenia C. Heldt & Thomas Dörfler, 2022. "Orchestrating private investors for development: How the World Bank revitalizes," Regulation & Governance, John Wiley & Sons, vol. 16(4), pages 1382-1398, October.
    16. Humphrey, Chris & Michaelowa, Katharina, 2019. "China in Africa: Competition for traditional development finance institutions?," World Development, Elsevier, vol. 120(C), pages 15-28.

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