Do U.S. presidential administrations exert more informal influence over international financial institutions when they face an uncooperative Congress and thus have less control over bilateral aid? Reexamining four empirical studies of the World Bank, we demonstrate that U.S. informal influence is driven by years with divided U.S. government. This provides a richer picture of when and why the U.S. exerts influence in multilateral settings and an alternate explanation to persistent questions about the role of international organizations in the international political economy.
This is a preview of subscription content, log in to check access.
Buy single article
Instant access to the full article PDF.
Price includes VAT for USA
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
This is the net price. Taxes to be calculated in checkout.
Indeed, some in Congress have consistently used votes on foreign aid as a platform to promote their political careers. For example, for decades Rep. Chris Smith (Republican, New Jersey) has attempted to tie foreign aid to the abortion debate in spite of research showing that the resulting restrictions on family planning assistance actually increase the number of abortions (Bendavid et al. 2011; Jones 2011).
The last foreign assistance authorization bill passed was in 1985 so that the authorization process has become less central for shaping U.S. development assistance.
Tarnoff and Lawson (2011, 29) provide details regarding congressional jurisdiction over various parts of the aid budget: “In the Senate, the Committee on Foreign Relations, and in the House, the Committee on Foreign Affairs, have primary jurisdiction over bilateral development assistance, ESF [Economic Support Fund] and other economic security assistance, military assistance, and international organizations. Food aid, primarily the responsibility of the Agriculture Committees in both bodies, is shared with the Foreign Affairs Committee in the House. U.S. contributions to multilateral development banks are within the jurisdiction of the Senate Foreign Relations Committee and the House Financial Services Committee.”
According to Brainard et al. (2003, 180), “[t]he executive branch almost always honors these hold requests, even when they create indefinite delay.” This is despite “the uncertainty created by the ever-present risk of congressional holds and the ability of a lone member of Congress to trump the president’s foreign aid policies.”
According to Gore (1993): “Earmarks have not been confined to legislation, however. Several appropriations bills were accompanied by lengthy conference reports by congressional committees, requesting or directing the expenditure of funds in particular ways. AID officials recognize that such reports do not have the force of law. Nevertheless, they feel constrained to implement requests or directions on funding allocations to try to meet Congress’ goals and to avoid problems.”
Daugirdas’ interpretation is also consistent with Weingast’s (1984) congressional dominance hypothesis since successful congressional control of IFIs would imply few examples of direct control/punishment (in equilibrium).
One alternative framework is a principal-agent model with the administration as the principal with a foreign policy objective and the Congress or World Bank management as the agent who undertakes the action (providing aid). However at the heart of that model is asymmetric information between the principal and the agent (Miller 2005), a feature not obvious here. The behavior of Congress or the World Bank is very much observable, so there is no need to set up a contract that hinges only on outcomes. As a corollary, there is also no clear problem of moral hazard on the side of Congress or World Bank management because the agent’s actions are observed.
This way of modeling costs assumes full information and perfect foresight on the side of the administration. The attempt to push the desired outcome through Congress, for example, involves several stages of negotiation, as described in the previous section. This constitutes a game. Here we assume that the administration can solve that game by backward induction and is aware of what the costs would be before choosing to take that route. The introduction of uncertainty regarding the exact outcome of negotiations with Congress will not lead to additional insights for our purposes and is therefore not considered.
The model has implications for aggregate annual budgets only if the administration rewards more often than it punishes, or if divided government or the World Bank limits one function (e.g., rewards) more than the other. In the online appendix we present evidence that the aggregate U.S. bilateral aid budget is smaller under divided government, though the budget dynamics of divided government certainly could operate through other channels.
We make the weaker claim that the results of previous research are driven primarily by years with divided U.S. government, not the stronger claim that there is no U.S. influence in years of undivided government or that U.S. influence is significantly stronger in years of divided U.S. government than in years of undivided U.S. government. Theory does not imply the former (i.e., there still could be influence, just not as much, in years with undivided U.S. government) and the latter might not hold despite an undivided point estimate very near zero simply because of a large standard error. The strength of our analysis comes instead from the consistency of findings across the four studies.
Full results available from authors.
Results are the same if we switch from the simple time trend in the original specification to year dummies.
Results are similar (in terms of sign, relative sizes, and significance) if we switch from the original probit specification with region dummies to a conditional logit with country fixed effects.
Note also that the changes in other coefficient estimates/significance are markedly less dramatic.
“Year” is defined as the year the PPAR rating was released (lagged by 1 as before) so that it matches with the timing of the UNSC@PPAR variable.
Results are similar if we deviate from the original specification to include country fixed effects.
Sector board codes designate the primary sector of the project (and hence the functional area of responsibility within the World Bank). These are: Agriculture and Rural Development (ARD); Education (ED); Energy, Mining and Telecommunications (EMT); Environment (ENV); Economic Policy (EP); Financial Management (FM); Finance and Private Sector Development (FPD); Financial Sector Practice (FSP); Global Information and Communications (GIC); Health, Nutrition and Population (HE); Poverty Reduction (PO); Public Sector Governance (PS); Private Sector Development (PSD); Rural Development (RDV); Social Development (SDV); Social Protection (SP); Transport (TR); Urban Development (UD); Water and Sanitation (WAT); and Sewerage (WS).
The sample mean for Divided is 0.70. There are 294 observations with a value of 0 and 2172 observations with a value of 1; the remainder of the distribution is approximately normal with a conditional mean of 0.54.
Note that the specification includes fixed effects and so cannot also include the un-interacted Undivided variable since Divided + Undivided ≡ 1.
We cannot also include CEE × UN Alignment. Because Undivided = 1-Divided, we have Divided × CEE × UN Alignment + Undivided × CEE × UN Alignment = CEE × UN Alignment. Including all three terms in the regression results in perfect multicollinearity.
Note this is not a test of divided government versus party but rather a test of whether party matters after controlling for divided government.
Abbott, K. W., & Snidal, D. (1998). Why states act through formal international organizations. The Journal of Conflict Resolution, 42(1), 3–32.
Andersen, T. B., Harr, T., & Tarp, F. (2006). On US politics and IMF lending. European Economic Review, 50(7), 1843–1862.
Bendavid, E., Avila, P., & Miller, G. (2011). United States aid policy and induced abortion in Sub-Saharan Africa. Bulletin of the World Health Organization, 89(12), 873–880.
Binder, S. A. (1999). The dynamics of legislative gridlock, 1947-96. American Political Science Review, 93(3), 519–533.
Brainard, L., Grahmn, C. L., Purvis, N., Radelet, S., & Smith, G. E. (2003). The other war: Global poverty and the Millennium Challenge Account. Washington, DC: The Brookings Institution.
Brech, V., & Potrafke, N. (2014). Donor ideology and types of foreign aid. Journal of Comparative Economics, 42(1), 61–75.
Caddel, J. 2013. “The President, Congress, and the allocation of U.S. foreign aid.” In Jeremy Caddel, Domestic Political Institutions in U.S. Foreign Policy Decision Making, at http://openscholarship.wustl.edu/etd.
Canes-Wrone, B., Howell, W. G., & Lewis, D. E. (2008). Toward a broader understanding of presidential power: A reevaluation of the two presidencies thesis. Journal of Politics, 70(1), 1–16.
Daugirdas, K. (2013). Congress underestimated: The case of the World Bank. American Journal of International Law, 107(3), 517–562.
Dreher, A., Sturm, J.-E., & Vreeland, J. R. (2009a). Development aid and international politics: Does membership on the UN Security Council influence World Bank decisions? Journal of Development Economics, 88(1), 1–18.
Dreher, A., Sturm, J.-E., & Vreeland, J. R. (2009b). Global horse trading: IMF loans for votes in the United Nations Security Council. European Economic Review, 53(7), 742–757.
Dreher, Axel, Valentin F. Lang, B Peter Rosendorff, and James Raymond Vreeland. 2018. “Buying votes and international organizations: The dirty work-hypothesis.” Working Paper (May 2018).
Eichenauer, V. Z., & Reinsberg, B. (2017). What determines earmarked funding to international development organizations? Evidence from the new multi-bi aid data. The Review of International Organizations, 12(2), 171–197.
Faye, M., & Niehaus, P. (2012). Political aid cycles. American Economic Review, 102(7), 3516–3530.
Fleck, R. K., & Kilby, C. (2001). Foreign aid and domestic politics: Voting in Congress and the allocation of USAID contracts across congressional districts. Southern Economic Journal, 67(3), 598–617.
Fleck, R. K., & Kilby, C. (2006). How do political changes influence US bilateral aid allocations? Evidence from panel data. Review of Development Economics, 10(2), 210–223.
Fleck, R. K., & Kilby, C. (2010). Changing aid regimes? US foreign aid from the cold war to the war on terror. Journal of Development Economics, 91(2), 185–197.
Franklin, D. P., & Fix, M. P. (2016). The best of times and the worst of times: Polarization and presidential success in Congress. Congress and the Presidency, 43(3), 377–394.
Goldstein, M. P., & Moss, T. J. (2005). Compassionate conservatives or conservative compassionates? US political parties and bilateral foreign assistance to Africa. Journal of Development Studies, 41(7), 1288–1302.
Gore, A. (1993). “Appendix A: National performance review, major recommendations by agency. AID02: Reduce funding, spending, and reporting micromanagement.” From Red Tape to Results: Creating a Government that Works Better & Costs Less. Report of the National Performance Review. https://govinfo.library.unt.edu/npr/library/reports/aid02.html
Gwin, C. (1997). US relations with the World Bank, 1945-1992. In D. Kapur, J. P. Lewis, & R. Webb (Eds.), The World Bank: Its first half century (Vol. 2, pp. 243–274). The Brookings Institution: Washington.
Hlavac, M. (2013). The political economy of multilateral foreign aid: UNICEF as a tool of U.S. foreign policy. Mimeo.
Hughes, T., & Carlson, D. (2015). Divided government and delay in the legislative process: Evidence from important bills, 1949-2010. American Politics Research, 43(5), 771–792.
Imbeau, L. M. (1988). Aid and ideology. European Journal of Political Research, 16(1), 3–28.
Independent Evaluation Group (IEG). (2011). Trust fund support for development: An evaluation of the World Bank's trust fund portfolio. Washington, DC: The World Bank.
Jones, K. M. (2011). Evaluating the Mexico City Policy: How US foreign policy affects fertility outcomes and child health in Ghana. International Food Policy Research Institute (IFPRI) Discussion Paper No. 1147.
Kersting, E., & Kilby, C. (2016). With a little help from my friends: Global electioneering and World Bank lending. Journal of Development Economics, 121, 153–165.
Kilby, C. (2009). The political economy of conditionality: An empirical analysis of World Bank loan disbursements. Journal of Development Economics, 89(1), 51–61.
Kilby, C. (2013a). An empirical assessment of informal influence in the World Bank. Economic Development and Cultural Change, 61(2), 431–464.
Kilby, C. (2013b). The political economy of project preparation: An empirical analysis of World Bank projects. Journal of Development Economics, 105, 211–225.
Kilby, C. (2015). Assessing the impact of World Bank preparation on project outcomes. Journal of Development Economics, 115, 111–123.
Kilby, C., & Michaelowa, K. (2016). What influences World Bank project evaluations? Villanova School of Business Economics Working Paper #26.
Kuziemko, I., & Werker, E. (2006). How much is a seat on the Security Council worth? Foreign aid and bribery at the United Nations. Journal of Political Economy, 114(5), 905–930.
Lundsgaarde, E. (2013). The domestic politics of foreign aid. New York and London: Routledge.
Miller, G. J. (2005). The political evolution of principal-agent models. Annual Review of Political Science, 8, 203–225.
Milner, H. V., & Tingley, D. (2010). The political economy of U.S. foreign aid: American legislators and the domestic politics of aid. Economics and Politics, 22(2), 200–232.
Milner, H. V., & Tingley, D. (2011). Who supports global economic engagement? The sources of preferences in American foreign economic policy. International Organization, 65(1), 37–68.
Milner, H. V., & Tingley, D. (2013). The choice for multilateralism: Foreign aid and American foreign policy. The Review of International Organizations, 8(3), 313–341.
Milner, H., & Tingley, D. (2015). American foreign policy and domestic politics: Sailing the water’s edge. Princeton: Princeton University Press.
Poole, K. T., & Rosenthal, H. (1997). Congress: A political-economic history of roll-call voting. New York: Oxford University Press.
Potrafke, N. (2018). Government ideology and economic policy-making in the United States-a survey. Public Choice, 174(1–2), 145–207.
Putnam, R. (1988). Diplomacy and domestic politics: The logic of two-level games. International Organization, 42(3), 427–460.
Raunio, T. (2014). Legislatures and foreign policy. The Oxford Handbook of Legislative Studies. Volume 1, Chapter 26, 543–566.
Raunio, T., & Wagner, W. (2017). Towards parliamentarisation of foreign and security policy? West European Politics, 40(1), 1–19.
Reinsberg, B. (2017). Organizational reform and the rise of trust funds: Lessons from the World Bank. The Review of International Organizations, 12(2), 199–226.
Strand, J. R., & Zappile, T. M. (2015). Always vote for principle, though you may vote alone: Explaining United States political support for multilateral development loans. World Development, 72, 224–239.
Tarnoff, C., & Lawson, M. L. (2011). Foreign aid: An introduction to U.S. programs and policy. Library of Congress, Washington DC, Congressional Research Service.
Thérien, J.-P., & Noël, A. (2000). Political parties and foreign aid. American Political Science Review, 94(1), 151–162.
Tingley, D. (2010). Donors and domestic politics: Political influences on foreign aid effort. The Quarterly Review of Economics and Finance, 50(1), 40–49.
Vaubel, R. (1986). A public choice approach to international organization. Public Choice, 51(1), 39–57.
Vreeland, J. R., & Dreher, A. (2014). The political economy of the United Nations Security Council: Money and influence. Cambridge: Cambridge University Press.
Weingast, B. R. (1984). The congressional bureaucratic system: A principal-agent perspective (with applications to the SEC). Public Choice, 44(1), 147–191.
Wildavsky, A. (1975). The two presidencies. In A. Wildavsky (Ed.), Perspectives on the Presidency (pp. 448–461). Boston: Little, Brown.
Xu, J. (2017). Beyond US hegemony in international development: The contest for influence at the World Bank. Cambridge: Cambridge University Press.
An early draft of this paper circulated under the title “Bilateral versus Multilateral: Picking Policy Instruments.”
We received valuable feedback from participants in the Swiss Network for International Studies Workshop on the Politics of Informal Governance (organized by Oliver Westerwinter), PEIO IX, AEL, TWIIGG, the Swarthmore Economics Department Summer Research Seminar Series, and the Economics and Politics Seminar Series at the Heidelberg Alfred Weber Institute, University of Heidelberg.
About this article
Cite this article
Kersting, E., Kilby, C. Do domestic politics shape U.S. influence in the World Bank?. Rev Int Organ (2018). https://doi.org/10.1007/s11558-018-9321-8
- World Bank
- Divided government
- Geopolitics of aid