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Does the World Bank Move Markets?

Erasmus Kersting () and Christopher Kilby ()

No 42, Villanova School of Business Department of Economics and Statistics Working Paper Series from Villanova School of Business Department of Economics and Statistics

Abstract: This paper examines the impact of World Bank loans on borrowing country equity markets. We exploit a rich dataset with World Bank loan commitments and stock market returns at the monthly level, allowing us to study short run market reactions to news about loan commitments. Given ex ante uncertainty over the influx of resources, we expect a positive overall response to loan size in terms of the local stock market returns. To address potential endogeneity, we use a supply-push instrument based on countries' historic budget shares and the overall World Bank budget. Estimation results point to a sizable positive short run impact of World Bank loan commitments on local markets that may reduce the cost of capital for local entrepreneurs.

Keywords: World Bank; Emerging Markets; Financial Development; Adjustment Lending; Supply-Push Instruments (search for similar items in EconPapers)
JEL-codes: F33 F53 G12 G14 G15 H63 H81 O19 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-ore
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