Manuela Francisco initiated this research task and participated in its design. The team has benefited from technical discussions with Christian Gonzalez, Kamer Karakurum-Özdemir, Stephen Knack, Eric Le Borgne, Dorsati Madani, Toru Nishiuchi, Lucy Pan, Mariela Paredes Alanes, Peter Siegenthaler, Vivek Suri, Ashley Taylor and Theo Thomas and from useful comments and suggestions by the journal's referee.

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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.

Open Research

DATA AVAILABILITY STATEMENT

This research uses Country Policy and Institutional Assessments data for both International Development Association and non-International Development Association countries. Country Policy and Institutional Assessments data for non-International Development Association countries are not publicly available. All other data and the econometric code are available upon request.

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Volume32, Issue7

October 2020

Pages 1194-1228

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

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

Abstract

Open Research

DATA AVAILABILITY STATEMENT

REFERENCES

Citing Literature

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