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Is It the Journey That Matters? A Fresh Look at the Impact of World Bank Policy Lending

Peter Moll and Lodewijk Smets

Journal of International Development, 2020, vol. 32, issue 7, 1194-1228

Abstract: This paper investigates the impact of World Bank policy lending on the quality of economic policy. A new econometric specification distinguishes among two effects that have been conflated hitherto: (i) marginal impacts of additional policy actions and (ii) the length of the policy engagement. Panel estimations on a revised data set indicate that development policy financing has a positive effect on the quality of economic policy. Results are robust to the use of different estimation techniques, sample restrictions, the inclusion of additional controls, omitted variable bias adjustment, a placebo test and a compound IV strategy. Next, the econometric work suggests that the quality of the engagement matters more than the sheer number of policy actions. We provide several arguments of why the process of engagement is key. Finally, there is evidence that longer engagements lead to lower policy impacts, which may be related to a change to more complex, second‐generation reforms. © 2020 John Wiley & Sons, Ltd.

Date: 2020
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Working Paper: Is It the Journey That Matters ? A Fresh Look at the Impact of World Bank Policy Lending (2018) Downloads
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