IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

World Bank lending and the quality of economic policy

  • Smets, Lodewijk
  • Knack, Stephen

This study investigates the impact of World Bank development policy lending on the quality of economic policy. It finds that the quality of policy increases, but at a diminishing rate, with the cumulative number of policy loans. Similar results hold for the cumulative number of conditions attached to policy loans, although quadratic specifications indicate that additional conditions may even reduce the quality of policy beyond some point. The paper measures the quality of economic policy using the World Bank's Country Policy and Institutional Assessments of macro, debt, fiscal and structural policies, and considers only policy loans targeted at improvements in those areas. Previous studies finding weaker effects of policy lending on macro stability have failed to distinguish loans primarily intended to improve economic policy from other loans targeted at improvements in sector policies or in public management. The paper also shows that investing in economic policy does not"crowd out"policy improvements in other areas such as public sector governance or human development. The results are robust to using alternative indicators of policy quality, and correcting for endogeneity with system generalized methods of moments and cross-sectional two-stage least squares. The more positive results in the study relative to some previous studies based on earlier loans are consistent with claims by the World Bank that it has learned from its mistakes with traditional adjustment lending.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2014/06/16/000158349_20140616104649/Rendered/PDF/WPS6924.pdf
Download Restriction: no

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6924.

as
in new window

Length:
Date of creation: 01 Jun 2014
Date of revision:
Handle: RePEc:wbk:wbrwps:6924
Contact details of provider: Postal:
1818 H Street, N.W., Washington, DC 20433

Phone: (202) 477-1234
Web page: http://www.worldbank.org/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  2. Dreher, Axel & Lamla, Michael J. & Lein, Sarah M. & Somogyi, Frank, 2009. "The impact of political leaders' profession and education on reforms," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 169-193, March.
  3. Svensson, Jakob, 1997. "When is foreign aid policy credible : aid dependence and conditionality," Policy Research Working Paper Series 1740, The World Bank.
  4. Alesina, Alberto & Baqir, Reza & Easterly, William, 1999. "Public goods and ethnic divisions," Policy Research Working Paper Series 2108, The World Bank.
  5. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
  6. Chauvet, Lisa & Collier, Paul, 2009. "Elections and Economic Policy in Developing Countries," Economics Papers from University Paris Dauphine 123456789/4315, Paris Dauphine University.
  7. Robert J Barro & Jong-Wha Lee, 2003. "IMF Programs: Who Is Chosen and What Are the Effects?," Departmental Working Papers 2003-09, The Australian National University, Arndt-Corden Department of Economics.
  8. Lodewijk Smets & Stephen Knack & Nadia Molenaers, 2013. "Political ideology, quality at entry and the success of economic reform programs," The Review of International Organizations, Springer, vol. 8(4), pages 447-476, December.
  9. Juliana Bambaci & Tamara Saront & Mariano Tommasi, 2002. "The Political Economy of Economic Reforms in Argentina," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(2), pages 75-88.
  10. Dani Rodrik, 2008. "Second-Best Institutions," NBER Working Papers 14050, National Bureau of Economic Research, Inc.
  11. Michael A. Clemens & Steven Radelet & Rikhil R. Bhavnani & Samuel Bazzi, 2012. "Counting Chickens when they Hatch: Timing and the Effects of Aid on Growth," Economic Journal, Royal Economic Society, vol. 122(561), pages 590-617, 06.
  12. Bernhard Boockmann & Axel Dreher, 2002. "The Contribution of the IMF and the World Bank to Economic Freedom," International Finance 0207001, EconWPA.
  13. Christoph Moser & Jan-Egbert Sturm, 2011. "Explaining IMF Lending Decisions after the Cold War," KOF Working papers 11-279, KOF Swiss Economic Institute, ETH Zurich.
  14. Dani Rodrik, 1996. "Understanding Economic Policy Reform," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 9-41, March.
  15. Rodrik, Dani, 1990. "How should structural adjustment programs be designed?," World Development, Elsevier, vol. 18(7), pages 933-947, July.
  16. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
  17. Dani Rodrik, 1992. "The Limits of Trade Policy Reform in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 87-105, Winter.
  18. Jac C. Heckelman & Stephen Knack, 2008. "Foreign Aid and Market-Liberalizing Reform," Economica, London School of Economics and Political Science, vol. 75(299), pages 524-548, 08.
  19. Kilby, Christopher, 2005. "World Bank lending and regulation," Economic Systems, Elsevier, vol. 29(4), pages 384-407, December.
  20. G. Bird & D. Rowlands, 2001. "World Bank Lending And Other Financial Flows: Is There a Connection?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(5), pages 83-103.
  21. Butkiewicz, James L. & Yanikkaya, Halit, 2005. "The Effects of IMF and World Bank Lending on Long-Run Economic Growth: An Empirical Analysis," World Development, Elsevier, vol. 33(3), pages 371-391, March.
  22. William Easterly, 2002. "What did Structural Adjustment Adjust? The Association of Policies and Growth with Repeated IMF and World Bank Adjustment Loans," Working Papers 11, Center for Global Development.
  23. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  24. Collier, Paul & Guillaumont, Patrick & Guillaumont, Sylviane & Gunning, Jan Willem, 1997. "Redesigning conditionality," World Development, Elsevier, vol. 25(9), pages 1399-1407, September.
  25. Christopher Kilby, 2011. "The Political Economy of Project Preparation: An Empirical Analysis of World Bank Projects," Villanova School of Business Department of Economics and Statistics Working Paper Series 14, Villanova School of Business Department of Economics and Statistics.
  26. Stefan G. Koeberle, 2003. "Should Policy-Based Lending Still Involve Conditionality?," World Bank Research Observer, World Bank Group, vol. 18(2), pages 249-273.
  27. Paul Collier, 2000. "Ethnicity, Politics and Economic Performance," Economics and Politics, Wiley Blackwell, vol. 12(3), pages 225-245, November.
  28. David Roodman, 2007. "A Note on the Theme of Too Many Instruments," Working Papers 125, Center for Global Development.
  29. Jones, Chris & Morrissey, Oliver & Nelson, Doug, 2011. "Did the World Bank Drive Tariff Reforms in Eastern Africa?," World Development, Elsevier, vol. 39(3), pages 324-335, March.
  30. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
  31. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  32. John Williamson, 1994. "The Political Economy of Policy Reform," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 68, February.
  33. Svensson, Jakob, 2003. "Why conditional aid does not work and what can be done about it?," Journal of Development Economics, Elsevier, vol. 70(2), pages 381-402, April.
  34. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  35. Alberto Alesina & Reza Baqir & William Easterly, 1999. "Public Goods and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1243-1284.
  36. Agostino, Mariarosaria, 2008. "World Bank Conditional Loans and Private Investment in Recipient Countries," World Development, Elsevier, vol. 36(10), pages 1692-1708, October.
  37. Axel Dreher & Jan-Egbert Sturm, 2012. "Do the IMF and the World Bank influence voting in the UN General Assembly?," Public Choice, Springer, vol. 151(1), pages 363-397, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:6924. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.