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Political ideology, quality at entry and the success of economic reform programs

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  • Smets, Lodewijk
  • Knack, Stephen
  • Molenaers, Nadia

Abstract

This study investigates how government ideology matters for the success of World Bank economic policy loans, which typically support market-liberalizing reforms. A simple model predicts that World Bank staff will invest more effort in designing an economic policy loan when faced with a left-wing government. Empirically, estimates from a Heckman selection model show that the quality at entry of an economic policy loan is significantly higher for governments with a left-wing party orientation. This result is robust to changes in the sample, alternative measures of ideology, different estimation techniques and the inclusion of additional control variables. Next, robust findings from estimating a recursive triangular system of equations indicate that leftist governments comply more fully with loan agreements. Results also suggest that World Bank resources are more productive -- in terms of reform success -- in the design of policy operations than in their supervision. Anecdotal evidence from several country cases is consistent with the finding that left-wing governments receive higher quality loans.

Suggested Citation

  • Smets, Lodewijk & Knack, Stephen & Molenaers, Nadia, 2012. "Political ideology, quality at entry and the success of economic reform programs," Policy Research Working Paper Series 6130, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6130
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    Cited by:

    1. Dreher, Axel & Minasyan, Anna & Nunnenkamp, Peter, 2013. "Government ideology in donor and recipient countries: Does political proximity matter for the effectiveness of aid?," Kiel Working Papers 1870, Kiel Institute for the World Economy (IfW Kiel).
    2. Axel Dreher & Stephan Klasen & James Raymond Vreeland & Eric Werker, 2013. "The Costs of Favoritism: Is Politically Driven Aid Less Effective?," Economic Development and Cultural Change, University of Chicago Press, vol. 62(1), pages 157-191.
    3. David Bulman & Walter Kolkma & Aart Kraay, 2017. "Good countries or good projects? Comparing macro and micro correlates of World Bank and Asian Development Bank project performance," The Review of International Organizations, Springer, vol. 12(3), pages 335-363, September.
    4. Daniel L. Nielson & Bradley Parks & Michael J. Tierney, 2017. "International organizations and development finance: Introduction to the special issue," The Review of International Organizations, Springer, vol. 12(2), pages 157-169, June.
    5. Kilby, Christopher, 2013. "The political economy of project preparation: An empirical analysis of World Bank projects," Journal of Development Economics, Elsevier, vol. 105(C), pages 211-225.
    6. Philip Keefer & Christopher Kilby, 2021. "Introduction to the special issue: In memoriam Stephen Knack," The Review of International Organizations, Springer, vol. 16(3), pages 473-493, July.
    7. Lodewijk Smets & Stephen Knack, 2016. "World Bank Lending and the Quality of Economic Policy," Journal of Development Studies, Taylor & Francis Journals, vol. 52(1), pages 72-91, January.
    8. Dreher, Axel & Minasyan, Anna & Nunnenkamp, Peter, 2015. "Government ideology in donor and recipient countries: Does ideological proximity matter for the effectiveness of aid?," European Economic Review, Elsevier, vol. 79(C), pages 80-92.
    9. Romain Duval & Davide Furceri & Jakob Miethe, 2021. "Robust political economy correlates of major product and labor market reforms in advanced economies: Evidence from BAMLE for logit models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(1), pages 98-124, January.
    10. Peter Moll & Lodewijk Smets, 2020. "Is It the Journey That Matters? A Fresh Look at the Impact of World Bank Policy Lending," Journal of International Development, John Wiley & Sons, Ltd., vol. 32(7), pages 1194-1228, October.
    11. Mirko Heinzel & Andrea Liese, 2021. "Managing performance and winning trust: how World Bank staff shape recipient performance," The Review of International Organizations, Springer, vol. 16(3), pages 625-653, July.
    12. Mitchell Watkins, 2022. "Undermining conditionality? The effect of Chinese development assistance on compliance with World Bank project agreements," The Review of International Organizations, Springer, vol. 17(4), pages 667-690, October.
    13. Knack,Stephen & Parks,Bradley Christopher & Harutyunyan,Ani & DiLorenzo,Matthew, 2020. "How Does the World Bank Influence the Development Policy Priorities of Low-Income and Lower-Middle Income Countries ?," Policy Research Working Paper Series 9225, The World Bank.
    14. Galeazzi, Clara & Steinbuks, Jevgenijs & Anadon, Laura Diaz, 2024. "Assessing the impact of renewable energy policies on decarbonization in developing countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 199(C).
    15. Silvia Marchesi & Tania Masi, 2021. "Delegation of implementation in project aid," The Review of International Organizations, Springer, vol. 16(3), pages 655-687, July.
    16. Christopher Kilby & Katharina Michaelowa, 2019. "What Influences World Bank Project Evaluations?," Springer Books, in: Nabamita Dutta & Claudia R. Williamson (ed.), Lessons on Foreign Aid and Economic Development, chapter 0, pages 109-150, Springer.
    17. Heinzel, Mirko & Reinsberg, Bernhard, 2024. "Trust funds and the sub-national effectiveness of development aid: Evidence from the World Bank," World Development, Elsevier, vol. 179(C).

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    More about this item

    Keywords

    Economic Adjustment and Lending; Banks&Banking Reform; Public Sector Corruption&Anticorruption Measures; Economic Theory&Research; Debt Markets;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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