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Title: World bank lending and the quality of economic policy
Authors: Smets, Lode ×
Knack, Stephen #
Issue Date: 2016
Publisher: F. Cass
Series Title: The Journal of Development Studies vol:52 issue:1 pages:72-91
Abstract: This study investigates the impact of World Bank development policy lending on the quality of economic policy. It nds that the quality of policy increases, but at a diminishing rate, with the cumulative number of policy loans. Similar results hold for the cumulative number of conditions attached to policy loans, although quadratic specications indicate that additional conditions may even reduce the quality of policy beyond some point. The
paper measures the quality of economic policy using the World Bank's Country Policy and Institutional Assessments of macro, debt, scal and structural policies, and considers
only policy loans targeted at improvements in those areas. Previous studies nding weaker effects of policy lending on macro stability have failed to distinguish loans primarily intended to improve economic policy from other loans targeted at improvements in sector policies or in public management. The paper also shows that investing in economic policy does not "crowd out" policy improvements in other areas such as public sector governance or human development. The results are robust to using alternative indicators of policy quality and correcting for endogeneity with system generalized methods of moments and
cross-sectional two-stage least squares. The more positive results in the study relative to some previous studies are consistent with claims by the World Bank that it has learned
from its mistakes with traditional adjustment lending.
ISSN: 0022-0388
Publication status: published
KU Leuven publication type: IT
Appears in Collections:LICOS - Centre for Institutions and Economic Performance, Leuven
× corresponding author
# (joint) last author

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