The Role of the World Bank in Middle Income Countries

This paper establishes some general principles of the rationale for development assistance in Middle Income Countries and then applies these principles to the operations of the World Bank. It then puts the argument through its paces for the specific case of India, which has just transitioned into middle income status. The main conclusions are as follows. Whether or not IBRD is “development assistance”, the rationale for its engagement in MICs flows from the objectives of poverty reduction and global spillovers. The key issue in deploying limited IBRD resources is not just its value added, but value added relative to the best alternative source of finance and technical assistance. Survey evidence suggests that MIC countries are aware of alternative sources, and have assessments of comparative advantage. My hypothesis, a gross generalization of course, is that the Bank’s comparative advantage is stronger the further away the location is from the centre, and the closer the activity is to the poor. I include environmental dimensions under this heading. Finally, to the extent that the Bank’s global objectives indicate a different pattern of engagement than country specific comparative advantage might suggest, then, effectively, these activities will have to be subsidized relative to others.