The Politics of Development Aid: Understanding the Lending Practices of the World Bank Group

Abstract

This study examines variations in the lending strategies of the four main agencies of the World Bank. Countries with similar basic development and demographic attributes often receive very different amounts of financial support from the different agencies of the World Bank. Utilizing regression analysis of panel-data covering the years between 1990 through 2011, the study finds that variation in the allocation of development aid both within and between the different World Bank agencies (IBRD, IDA, IFC, and MIGA) do not generally reflect patterns in objective indicators of economic need or institutional quality among recipients. Rather, statistical analysis shows that World Bank aid is positively correlated with several measures of donor influence. Utilizing a multi-donor model of political influence, the study finds evidence that the Bank’s top donors, countries such as the United States, United Kingdom, and Japan disproportionately influence the Bank to lend in ways that support their foreign policy interests. Countries with close economic, political, and geostrategic ties to powerful donors tend to receive more aid on average than their less well-connected peers. The data show that the Bank often lends in ways that contradict its own lending criteria. Despite the Bank’s explicit emphasis on economic need and institutional quality, the agencies of the World Bank often provide greater amounts of assistance to those with less need and poor quality governance. The study has implications for the study of international organizations, institutional design, and how donor influence at the World Bank is mediated by variations in internal agency structures.