The Economic Effects of World Bank Development-oriented Lending Open Access

Zhu, Kaishan (2017)

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An integral player in global development, the World Bank has intensely utilized its development-oriented lending programs in stimulating sustainable economic growth across the globe. By using data from 1991 to 2000, this paper examines the effectiveness of World Bank development-oriented lending in generating long-term economic growth. By incorporating political proximity to the United States and number of nationals served as executive directors as two instruments, this study manages to isolate the economic effect of World Bank lending. The result reveals that percentage increase in the amount of World Bank lending exerts positive effects on long-term GDP growth. However, the effectiveness of World Bank lending highly depends on the economic fundamentals of an economy. A political and institutional analysis of lending approval process at the World Bank also reveals that voting power, governing and policy reforms are needed for the World Bank to better fulfill its institutional goals.

Table of Contents

Introduction 1

Literature review 3

The World Bank and Its Loan Programs 8

First Stage Analysis 11

Second Stage Analysis 20

Conclusion 24

References 28

Tables and Figure 31

Table 1: Approval of World Bank Loan Programs, 1970-2014 31

Table 2: Approval of Development-oriented Programs, 1991-2000 32

Table 3: Summary Statistics for Variables Used in Stage One Regressions 33

Table 4: Determinants of Amount of World Bank Development-oriented Lending 34

Table 5: Regional Breakdown of Elected Executive Directors' Nationality, 1991-2000 36

Table 6: Summary Statistics for Variables Used in Stage Two Regressions 37

Table 7: Determinants of 5-year GDP Growth 38

Table 8: Comparison Between Actual and Predicated Amount of Lending 39

Figure 1: Histograms of Actual and Predicted Amount of Lending 40

Appendix 41

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