Do domestic politics shape U.S. influence in the World Bank?

Abstract

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.

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Fig. 1

Notes

  1. 1.

    Following Vaubel (1986), Abbott and Snidal (1998, 18) refer to this as a “laundering function.” See also Vreeland and Dreher (2014) and Dreher et al. (2018).

  2. 2.

    Two appendices (Appendix 1 with our formal model; Appendix 2 with additional empirical results) are available on the Review of International Organizations’ webpage, together with replication materials for use with Stata sofware.

  3. 3.

    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).

  4. 4.

    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.

  5. 5.

    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.”

  6. 6.

    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.”

  7. 7.

    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.”

  8. 8.

    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).

  9. 9.

    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.

  10. 10.

    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.

  11. 11.

    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.

  12. 12.

    The point that Congress has more influence (and correspondingly the administration has less influence) in the case of divided government is also made by Raunio (2014, 546) and Raunio and Wagner (2017, 4).

  13. 13.

    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.

  14. 14.

    Full results available from authors.

  15. 15.

    Results are the same if we switch from the simple time trend in the original specification to year dummies.

  16. 16.

    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.

  17. 17.

    Note also that the changes in other coefficient estimates/significance are markedly less dramatic.

  18. 18.

    “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.

  19. 19.

    Results are similar if we deviate from the original specification to include country fixed effects.

  20. 20.

    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).

  21. 21.

    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.

  22. 22.

    Note that the specification includes fixed effects and so cannot also include the un-interacted Undivided variable since Divided + Undivided ≡ 1.

  23. 23.

    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.

  24. 24.

    Note this is not a test of divided government versus party but rather a test of whether party matters after controlling for divided government.

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Correspondence to Erasmus Kersting.

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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.

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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

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Keywords

  • World Bank
  • Divided government
  • Geopolitics of aid

JEL Clasification

  • F35
  • F53
  • O19