http://orcid.org/0000-0002-3693-9461
![Sample our Politics & International Relations journals, sign in here to start your FREE access for 14 days]({"type":"image" , "src" : "/sda/5947/TOC-Subject-Sample-2021-Politics-International-Relations.jpg"})
Abstract
The literature on the autonomy of international organizations describes how bureaucratic agents often operate with slack that allows them to pursue their preferences in the shadow of institutional mandates. We study the division of costs in World Bank projects between the Bank and its borrowers. If this is a realm in which World Bank bureaucrats exert agency, we expect to see counterpart financing vary with poverty and governance, in line with theories about aid selectivity. If, on the other hand, this is a realm in which the Bank’s state principals exert influence, we expect strategic interest measures to predict the division of financing. If counterpart commitments represent the outcome of Bank-borrower bargaining, we expect borrowers with outside options to contribute less. A 2004 rule revision at the Bank provides an opportunity to study how financing patterns changed when bureaucratic agents obtained more discretion. We show that increased flexibility within the Bank led to a deployment of resources that favored poorer countries, in line with the organizational mission of the Bank. We find less evidence of governance selectivity, and we find mixed results with regard to how a country’s strategic importance or bargaining power influenced levels of counterpart funding.
Acknowledgments
Previous versions of this article were presented at the 2011 Midwest Political Science Association and American Political Science Association Annual Meetings, the 2012 Political-Economy of International Organizations Conference, the 2013 Zuckerman Conference of the Mellon Interdisciplinary Fellows Program at Columbia University, the 2013 New Directions in Foreign Aid Conference at Princeton University, the University of Wisconsin, the National University of Singapore, the University of Connecticut, the University of São Paulo and the College of William & Mary. Thanks to Mark Buntaine, Xinyuan Dai, Simone Dietrich, Andreas Fuchs, Felix Gerlsbeck, Desha Girod, Chris Humphrey, Christopher Kilby, Rick Loeza, Espen Moe, Bob Pahre and Haley Swedlund for comments and to William Bernhard for useful conversations. Thanks to Valerie Ferrin for useful research assistance.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 These ideas are articulated in the Articles of Agreement for both the International Bank for Reconstruction and Development (Citation2012) and the International Development Association (Citation1960).
2 On how innovations in development financing respond to mutual commitment problems between donors and recipients, see Swedlund (Citation2017).
3 The 1993 Operations Manual explicitly describes counterpart contributions as a means for “the borrower to demonstrate commitment to the project.” The relevant section of the Operations Manual from 1993 is available at http://siteresources.worldbank.org/OPSMANUAL/Resources/06.30.OP.Local.CostFinancing.and.Cost.Sharing.pdf (accessed on 19 July 2016). In addition, counterpart financing has been included in projects to cover expenses for things that the Bank is not permitted to finance (e.g. recurrent costs like teacher salaries or land purchases) (World Bank Operations Policy and Country Services, Citation2004; author’s interviews H, I and K).
4 In a paper that considers whether donors should eschew funding recurrent costs or not, Over (Citation1981) characterizes conditions under which governments rationally fail to provide committed counterpart funds.
5 We believe that most World Bank staff are intrinsically motivated by a desire to catalyze development and poverty alleviation in the countries where they work. When a staff member faces two otherwise similar options but expects superior development impact from one of them, we anticipate that they will choose the option that they believe will do more for a country’s development. When a professional incentive competes with the option that favors development impact, however, we expect individuals to be more likely, on average, to respond to their self-interest.
6 Two reviewers asked whether the rule change and/or the patterns in counterpart commitments that followed it reflect overall changes in global development discourse. It is plausible that the poverty-oriented development discourse of the early 2000s might have facilitated the Bank’s action. Our interview subjects, however, only mentioned internal Bank discourse. Whether or not Bank staff would have reacted to the rule change in the same way in the absence of a global anti-poverty discourse is a difficult counterfactual to assess, since we only observe two time periods, one with and one without the rule.
7 For the Dominican Republic and Sao Tome and Principe, the Bank’s country financing parameters still required a 10 percent contribution for any given project (World Bank Operations Policy and Country Services, Citation2005). For countries beyond these 87, country financing parameters were established in subsequent years.
8 Pallage and Robe (Citation2015) present a model in which counterpart commitments are a solution to an adverse selection problem in which a donor does not know if the recipient is choosing a project that will bring about development or that will function as a political patronage good. They cite the empirical results from a previous draft of this paper as evidence.
9 A previous version of this manuscript focused entirely on bargaining-based explanations for the distribution of counterpart funding. One interview subject was adamant that this was not an appropriate perspective, saying that ‘there is no “bargaining” about counterpart financing. … As a [task-team leader] you have a window for how much you have access to in the lending program …, you design a project around that sum, then you figure out the counterpart financing ex post. If you can pump up the numbers to show more money will be coming in from non-Bank sources – a proxy for government ownership – that is good’ (author’s interview J).
10 The portal to the Projects Database can be found at http://go.worldbank.org/0FRO32VEI0 (accessed 20 July 2016).
11 Now known as development policy lending, structural adjustment lending is development financing meant to catalyze policy reforms and not to fund specific investments (Sharma, Citation2013). Investment projects may have reform components but differ from policy lending in that the project agreement describes specific goods and services. The majority of Bank lending is for specific investment projects.
12 Known as the Staff Appraisal Report (SAR) for some cases in the data.
13 We also record funding attributed to other international sources. About 20 percent of the projects in the dataset include funding from other donors.
14 We coded 380 cases from Project Papers, 53 from Technical Annexes, 11 from Project Information Documents, six from program documents, and one from a miscellaneous document.
15 We made multiple attempts to acquire compiled data from the World Bank.
16 From this point onward, we sort the data by World Bank fiscal year. The fiscal year begins on July 1 of the nominal year and ends on June 30 of the following year. The data from calendar years 2000–2010 falls into FY1999-FY2010, while the data from calendar years 2011–2017 falls into FY2010-FY2016. The calendar year 2004 rule change took place during FY2003.
17 There are 27 projects in the earlier period that have no counterpart funding commitments. These represent a set of ‘exceptional cases’ in which projects were approved without counterpart financing. Twenty-four of these projects are IDA projects, seven of which were in Afghanistan, and three of which were in the Republic of Congo.
18 The total project cost includes the World Bank’s commitment, funding from other multilateral and bilateral donors, and counterpart commitments.
19 See figures in the online appendix.
20 In an earlier version of this paper, we offered three hypotheses as to why countries turn to the World Bank in these scenarios. We intend to explore these hypotheses in future research.
21 In the online appendix, we present results where we explain the average proportion of total project costs financed by counterpart funding. Whereas the outcome variable used in the text is the ratio of counterpart funding to World Bank funding, the outcome variable in the appendix is the ratio of counterpart funding to the sum of counterpart funding, World Bank funding, and other external funding. We note in the text when results differ between the two variables.
22 See the online appendix for a table describing all variables.
23 Winters (Citation2010), Dietrich (Citation2013), and Winters and Martinez, (Citation2015) use this average of the six indicators. Bermeo (Citation2010, Citation2017) uses an average of five of the six indicators, excluding voice and accountability.
24 With reform to the World Bank’s voting structure in 2010, China became the third largest shareholder after the United States and Japan. Because we view China’s interests as less likely to coincide with those of the five countries named, we maintain the list of countries that were the largest shareholders before the change and study China separately. We look specifically at Japan because of the evidence that Japan has applied pressure within the World Bank to pursue various goals.
25 A robust finding from the conditionality literature is that countries with access to alternative sources of financing have been able to resist harsh conditions in structural adjustment programs (Dreher, Citation2004; Gibson et al., Citation2005; Girod, Citation2012; Killick, Gunatilaka, & Marr, Citation1998; Mosley et al., Citation1991).
26 In the online appendix, we provide two plots that show how the levels of and the presence or absence of counterpart funding vary by sector. Projects in infrastructure-heavy sectors such as transportation, energy and mining, and water and sanitation involve more counterpart financing.
27 In Appendix Table 3, we show the results with the proportion outcome variable. In this alternative specification, the coefficient on GDP per capita is significant for the FY99-FY03 period but only half the magnitude of the coefficient for the FY04-FY16 period.
28 Going forward, we do not report the relationship for the whole time period.
29 This is not the case when using the proportion outcome variable in supplementary Table 4.
30 In Supplementary Table 4, the Polity2 variable is marginally significantly related to lower proportions of counterpart financing in the more recent period. This finding is in line with H2, although the substantive size of the coefficient is small.
31 This relationship does not appear in Supplementary Table 5.
32 Using the proportion outcome variable, in Supplementary Table 6, only the result with regard to trade is replicated, and it is found in both the earlier and the more recent period, although the coefficient is greater for the more recent period.
33 In Supplementary Table 6, the coefficient estimates are substantively similar but do not obtain conventional levels of statistical significance.
34 Kilby (Citation2013b) also fails to find that US development assistance or US military assistance are important predictors; he does find that trade with the US predicts in the expected direction.
35 When using the proportion outcome variable, as in Supplementary Table 7, the coefficient estimates for the UN voting patterns relative to Japan and the G5 countries are in the same direction but are not statistically significant.
36 In Supplementary Table 8, the number of donors is a significant, positive predictor in the earlier period, while the aid concentration index is a significant positive predictor in the latter period. The latter result is in line with H4.
37 Stephen Knack suggested this possibility in a personal conversation.
Additional information
Notes on contributors
Matthew S. Winters
Matthew S. Winters is Associate Professor in the Department of Political Science at the University of Illinois. His research interests include the allocation and effectiveness of foreign aid, the political-economy of governance, and voter attitudes toward corruption. Winters has published articles in Journal of Politics, Comparative Politics, International Studies Quarterly, World Development, World Politics, and Political Research Quarterly, among other outlets. While working on this manuscript in the fall of 2016, Winters was a Council on Foreign Relations / Hitachi International Affairs Fellow in Japan affiliated with the National Graduate Institute for Policy Studies.
Jaclyn D. Streitfeld
Jaclyn D. Streitfeld is the Publications Director at the Global Centre for the Responsibility to Protect, where she has done research and advocacy on mass atrocity prevention, inter-state networks, and peacekeeping for the past eight years. Prior to joining the Global Centre she was a graduate student in the Department of Political Science at the University of Illinois.