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World Bank Capital Neither Complements Nor Substitutes for Private Capital


  • Michael Clemens



What should the World Bank optimally do with the US$10 to $20 billion it can loan each year? Has it, in fact, done what is optimal? These two questions, one theoretical and one empirical, have been around for a long time and remain controversial in both academic and policy circles. This study seeks to contribute to the debate by suggesting a simple framework within which to measure the World Bank against an optimal international public financier for development. It goes on to argue that a careful treatment of the empirical evidence on Bank lending strongly contradicts optimal behavior under different assumptions. The evidence, in fact, rejects any notion that the Bank has substituted for private capital or that it has successfully catalyzed private development finance. These questions of fact are separate from the normative issues of whether to “mend” or “end” the current system of multilateral development finance.

Suggested Citation

  • Michael Clemens, 2002. "World Bank Capital Neither Complements Nor Substitutes for Private Capital," Working Papers 20, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:20

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    References listed on IDEAS

    1. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    2. Nancy Birdsall, 2008. "Income Distribution: Effects on Growth and Development," Chapters,in: International Handbook of Development Economics, Volumes 1 & 2, chapter 48 Edward Elgar Publishing.
    3. Ricardo Hausmann & Lant Pritchett & Dani Rodrik, 2005. "Growth Accelerations," Journal of Economic Growth, Springer, vol. 10(4), pages 303-329, December.
    4. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
    5. Nancy Birdsall, 2007. "Do No Harm: Aid, Weak Institutions and the Missing Middle in Africa," Development Policy Review, Overseas Development Institute, vol. 25(5), pages 575-598, September.
    6. Kraay, Aart, 2006. "When is growth pro-poor? Evidence from a panel of countries," Journal of Development Economics, Elsevier, vol. 80(1), pages 198-227, June.
    7. Tanzi, Vito & Zee, Howell H., 2000. "Tax Policy for Emerging Markets: Developing Countries," National Tax Journal, National Tax Association, vol. 53(2), pages 299-322, June.
    8. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    9. Anne O. Krueger, 2004. "Virtuous in old age : how the IFIs can help prepare for demographic change," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 243-255.
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    Cited by:

    1. Derek D. Headey & Professor Christopher O`Donnell & D.S. Prasada Rao & Alan Duhs, 2004. "All the Conditions of Effective Foreign Aid," CEPA Working Papers Series WP082004, School of Economics, University of Queensland, Australia.

    More about this item


    World Bank; private capital; multilateral development finance;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements


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