Choosing to Target: What Types of Countries Get Different Types of World Bank Projects

Abstract

Well-governed countries are more likely to make use of foreign aid for the purposes of economic development and poverty alleviation. Therefore, if aid agencies are providing funds for the sake of development, these countries should receive more aid and categorically different types of aid as compared with poorly governed countries. In poorly governed countries aid should be given in forms that allow for less discretion. Using an original data set of all World Bank projects from 1996 to 2002, the author distinguishes programmatic projects from investment projects and national from subnational investment projects. If the World Bank allows more discretion in well-governed countries, then it will choose to provide programmatic and national aid for these recipients. The author presents evidence that the World Bank provides a larger proportion of national investment lending in better-governed countries. With regard to programmatic lending, he finds mixed evidence. Among counties eligible for International Development Association (IDA) aid, good governance surprisingly is associated with a lower proportion of programmatic aid, whereas for International Bank for Reconstruction and Development (IBRD) borrowers, good governance is associated with a higher proportion. The author subjects these results to a number of robustness checks. Although he confirms the existing result in the literature that the World Bank provides larger overall amounts of aid to better-governed countries, his examination of the disaggregated data leads to questioning whether both lending wings of the World Bank are designing aid programs in the most prodevelopment way possible.

Aid and Governance: Negative Returns?

“…These criticisms have been directly responded to by Kaufmann et al (2010: 1), the researchers behind the indicators, who note that despite problems associated with this (and all) aggregate data, the indicators 'permit meaningful cross-country and over-time comparisons'. The indicators have been used in this manner in several working papers and recently-published pieces, including Wernick et al(2009), Winters (2010 and Caceres and Kochanova (2012). However, the critiques prompt me to prefer the cross-section 'shift' specification when compared to the TSCS 'level' approach detailed below.…”

“…Yet as refreshing as Fukuyama's call for conceptual clarity may be, his focus on a bureaucratic-oriented conceptualization of governance is not the conceptualization that has been widely employed in considering the relationship between governance and development. iv Some examples of papers using the WGI conceptualization of governance include Shepherd (2010), Winters (2010) or Demetriades and Fielding (2012). v While there is reliable GDP data for almost all aid-recipient countries, reliable government expenditure data for countries with high levels of aid receipt is difficult to obtain.…”

Donor Transparency and Aid Allocation

“…These allocation formulas attach considerable importance to indicators of institutional performance and neediness. Allocation could nonetheless be improved if greater emphasis was placed on different aid instruments, such as project or programme aid, according to the political context in recipient countries (Winters 2010a 2.3. Donor transparency and the heterogeneity of allocation patterns?…”

Choosing international organizations: When do states and the World Bank collaborate on environmental projects?

“…Project funding is a central form of collaboration between recipients and international funding agencies (Dreher, Sturm, and Vreeland 2009;Kilby 2009;Winters 2010). If a recipient country seeks assistance to implement a project, such as building a road or a hospital, it can propose the project to a number of possible funders, ranging from the World Bank (WB) to regional development banks and bilateral lenders.…”

“…However, researchers have made little progress in explaining how states choose their international partners (see Humphrey and Michaelowa 2013: for an exception). Most studies of project implementation focus on a specific funding agency (Nielson and Tierney 2003;Fleck and Kilby 2006;Kilby 2009;Lyne, Nielson, and Tierney 2009;Winters 2010) and/or donor incentives (Rodrik 1995;Milner 2006). This lack of attention to partner choice is troubling for several reasons.…”