Abstract
This paper examines the ability of Board members of the most important multilateral donor to developing countries, the International Development Association (IDA) of the World Bank, to influence IDA allocations toward their home countries. I show that a system of Bank staff ratings of individual countries' policies, which has become more important in IDA lending over time, has systematically reduced the informal power of Board members. I show that while IDA Board members received more IDA commitments than their counterparts prior to 1989, this influence has disappeared since, as the importance of the policy index has increased. The findings are robust to the inclusion of fixed effects and a variety of relevant controls. In order to further support my argument, I also investigate the influence of Board membership on the Bank's policy index itself. I am unable to establish any positive relationship between Board membership and the index, either during the Cold War or afterwards. The findings not only shed important light on the internal workings of World Bank allocations to poor countries, but also highlight the ways in which institutional designs can affect the balance of informal power in international institutions.
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Notes
IDA provides concessional loans to its member countries and accounts for about a third of multilateral official development assistance (ODA) and about a tenth of all ODA. It also accounts for essentially all of the World Bank’s work in Africa, the poorest region of the world.
Quite reasonably, Kaja and Werker note that a full explanation for their finding of a lack of an effect in IDA is beyond the reach of their paper. They suggest two potential factors. One is normative, in the sense that IDA’s focus is on the poorest countries, and Kaja and Werker argue that this focus may dampen efforts to exert political influence. A second is bureaucratic, in the sense that there is a formula used to determine the amount that each country can access from IDA. The latter is the one investigated here.
While this is generally what Stone suggests, he puts less emphasis on the possibility that the benefits for less powerful countries can consist of informal power. I revisit this issue in the conclusion.
A Board of Governors, who rank above the Executive Directors, consists mainly of Central Bank Governors and Finance Ministers of member countries, but it only decides the most significant issues for the Bank, such as admitting and suspending members.
I became aware of this quotation through Woods (2000), footnote 40.
I will use CPIA to refer to the ratings before 1998 as well.
The abbreviation “SDRs” refers to “special drawing rights,” which is a measure of money used by the Bank and Fund. Their value is determined by a basket of four international currencies, and they can be exchanged for any useable currency.
The citation in Kapur et al. (1997) is World Bank, “Review of IDA Lending Allocation Criteria and Guidelines,” October 1989, contained in memorandum, Alexander Shakow, SPRDR, and Heinz Vergin, OPNDR, to Moeen A. Qureshi, OPIVSV, October 27, 1989.
Indeed, this increase in importance of the CPIA has caused the CPIA to become the focus of fights among donors, all of them wanting particular policies and issue areas included in it. As van Waeyenberge (2006: fn 5) writes, “while until then the Bank’s performance ratings and allocation procedures had mainly been the preserve of Bank staff, from the late 1980s onwards, IDA donors increasingly started to interfere in the rating procedure and peg their own concerns onto the existing order of performance-based allocation. These included the environment, governance, gender, the role of the private sector, public sector management and military expenditures.”
It should be noted that this description is probably most accurate for recent decades, but there is little reason to think that it has changed dramatically since 1977.
This timing coincides loosely with a variety of changes going on at the Bank at that time (Morrison 2011), including a renewed optimism about being able to focus on development after the end of the Cold War (Einhorn 2001), changing influences of the US on Bank operations, and increasing levels of debt owed to the IBRD.
Including country fixed effects is particularly important when studying the effect of the CPIA, because while the CPIA should influence the large majority of IDA flows, there are exceptions (IDA 2010). Most importantly, the issue of how to allocate money to countries with exceptionally large populations has always been an issue for IDA (Kapur et al. 1997), and some of these countries’ allocations are capped.
This share measure echoes the one of IDA commitments used as the dependent variable in the analysis.
This is Kaja and Werker’s “Bank voting power” variable.
Note that this usage of “financing gap” differs from a common usage of that phrase to refer to the difference between current payments and current receipts.
Using IBRD debt as a share of a country’s GDP—a more standard measure—may provide biased estimates if there is a correlation between shocks to a country’s GDP and its level of IDA resources. Nevertheless, the results are similar if I use IBRD debt as a share of GDP.
The difference between the Cold War and post-Cold War coefficients is not statistically significant.
The careful reader may note the smaller sample size for the IDA column in Table 1. Care was taken to ensure that countries in the sample were eligible for IDA. Certain countries have “graduated” from IDA, meaning that they are no longer eligible for funding. Some countries, once they have graduated, become eligible again at a later date. These dynamics can make generating a sample of eligible countries difficult, but the graduations and re-entries are listed on IDA’s website (www.worldbank.org/ida/ida-graduates.html). No country-year observation was included in the IDA sample if the year was during a period when the country was officially graduated. Not limiting the sample in this way yields similar results (with almost 6000 observations), but I think the sample reported is more accurate.
This result is also found in my previous work (Morrison 2011).
I am grateful to a particularly careful reviewer for suggesting this operationalization.
Indeed the overall diminishing of the informal power of developing countries echoes the trend discussed at the beginning of Section II, that formal power of developing countries has also diminished over time, as marked by the ratio of basic votes to total votes.
In addition, IBRD recipients might be on average more structurally powerful than IDA Board Members. I am grateful to Randall Stone for suggesting both of these ideas.
Scholars differ on exactly the nature of the environments in which aid works “best,” but even William Easterly (2007: 645), a critic of some of this work, has argued that “The idea that aid money directed to governments would be more productive if those governments had pro-development policies and institutions is very intuitive.”
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Acknowledgments
I am grateful to two anonymous reviewers for very helpful comments, and especially indebted to the guest editor Randall Stone for extensive suggestions that strengthened the manuscript.
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Morrison, K.M. Membership no longer has its privileges: The declining informal influence of Board members on IDA lending. Rev Int Organ 8, 291–312 (2013). https://doi.org/10.1007/s11558-012-9163-8
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DOI: https://doi.org/10.1007/s11558-012-9163-8