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World Bank aid and local multidimensional poverty in Sub-Saharan Africa

Liyunpeng Zhang, Xiao Li, Yuhang Zhuang and Ningning Li

Economic Modelling, 2022, vol. 117, issue C

Abstract: To what extent can World Bank (WB) aid reduce poverty to achieve the sustainable development goals? Recent literature suggests that the WB prefers to target affluent areas, prompting speculation about its ineffectiveness in poverty reduction. We contribute to the literature by examining whether WB aid alleviates poverty at the project level under the traditional motivations of aid flows. Combining geo-coded project data (2000–2014) with the individual multidimensional poverty index in 31 sub-Saharan African countries, we employ difference-in-differences and instrumental variable estimation strategies to address endogeneity. We demonstrate that WB aid significantly alleviated multidimensional poverty where projects were implemented by increasing public resources rather than economic activities, but only for the poor in more developed areas. The principal-agent problem and aid conditionality could weaken overall effectiveness. Our results suggest that enhancing multilateral cooperation can avoid the WB’s drawbacks in incentive structures and amplify its advantages in improving social welfare.

Keywords: World Bank aid; Multidimensional poverty; Sub-Saharan Africa; Urban bias; Principal-agent problem (search for similar items in EconPapers)
JEL-codes: F35 I3 O19 O55 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.econmod.2022.106065

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