What explains the success or failure of structural adjustment programs
TL;DR: This article examined a database of 220 World Bank-supported reform programs to identify why adjustment programs succeed or fail, and found that a few political economy variables can successfully predict the outcome of an adjustment loan 75 percent of the time.
Abstract: In the 1980s development assistance shifted largely from financing investments (such as roads and dams) to promoting policy reform. This change came because of a growing awareness that developing countries were held back more by poor policies than by a lack of finance for investment. After nearly 20 years' experience with policy-based or conditional lending, there have now been many studies of adjustment lending, most of which take a case-study approach. Many conclude that policy-based lending works if countries have decided on their own to reform. The authors examine a database of 220 World Bank-supported reform programs to identify why adjustment programs succeed or fail. They find that a few political economy variables can successfully predict the outcome of an adjustment loan 75 percent of the time. Variables under the World Bank's control -- resources devoted to preparation and supervision or number of conditions -- have no relationship with an adjustment program's success or failure. What development agencies must do, then, is select promising candidates for adjustment support. When the candidates is a poor selection, devoting more administrative resources or imposing more conditions will not increase the likelihood of successful reform. To improve its success rate with adjustment lending, the World Bank must become more selective and do a better job of understanding which environments are promising for reform and which are not. That is likely to lead to fewer adjustment loans, unless there is a significant change in the number of promising reformers. To become more effective at supporting policy reform, the agency must be willing to accept that this may lead to smaller volumes of lending.
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2,385 citations
01 Dec 1993
623 citations
Book•
01 Jan 2003TL;DR: In this article, the authors argue that governments enter IMF programs for economic and political reasons, and find that the effects are negative on economic growth and income distribution, and that the negative effects of IMF programs are mitigated for certain constituencies since programs also have distributional consequences.
Abstract: Why do governments turn to the International Monetary Fund (IMF) and with what effects? This book argues that governments enter IMF programs for economic and political reasons, and finds that the effects are negative on economic growth and income distribution. By bringing in the IMF, governments gain political leverage - via conditionality - to push through unpopular policies. Note that if governments desiring conditions are more likely to participate, estimating program effects is not straightforward: one must control for the potentially unobserved political determinants of selection. This book addresses the selection problem using a dynamic bivariate version of the Heckman model analyzing cross-national time-series data. The main finding is that the negative effects of IMF programs on economic growth are mitigated for certain constituencies since programs also have distributional consequences. But IMF programs doubly hurt the least well off in society: they lower growth and shift the income distribution upward.
610 citations
TL;DR: In this paper, a bivariate, dynamic version of the Heckman selection model is used to estimate the effect of participation in International Monetary Fund (IMF) programs on economic growth, and they find evidence that governments enter into agreements with the IMF under the pressures of a foreign reserves crisis but they also bring in the Fund to shield themselves from the political costs of adjustment policies.
548 citations
TL;DR: This article developed a model of efficient aid in which flows respond to policy improvements that create a better environment for poverty reduction and effective aid, and investigated scenarios of policy reform and efficient aid that point the way to how the world can cut poverty in half in every major region.
442 citations
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TL;DR: This article showed that ethnic diversity helps explain cross-country differences in public policies and other economic indicators in Sub-Saharan Africa, and that high ethnic fragmentation explains a significant part of most of these characteristics.
Abstract: Explaining cross-country differences in growth rates requires not only an understanding of the link between growth and public policies, but also an understanding of why countries choose different public policies. This paper shows that ethnic diversity helps explain cross-country differences in public policies and other economic indicators. In the case of Sub-Saharan Africa, economic growth is associated with low schooling, political instability, underdeveloped financial systems, distorted foreign exchange markets, high government deficits, and insufficient infrastructure. Africa's high ethnic fragmentation explains a significant part of most of these characteristics.
5,648 citations
"What explains the success or failur..." refers background in this paper
...One explanation for why a policy variable such as initial ®scal balance does not provide additional information in the outcome regression is that it is driven by the same socio-political variables that affect the likelihood of success (see for example Easterly and Levine, 1997)....
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...Easterly and Levine (1997)....
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Posted Content•
TL;DR: Burnside and Dollar as mentioned in this paper used a new database on foreign aid to examine the relationships among foreign aid, economic policies, and growth of per capita GDP and found that aid has a positive impact on growth in developing countries with good fiscal, monetary, and trade policies.
Abstract: Aid has a positive impact on growth in developing countries with good fiscal, monetary, and trade policies. Aid appears not to affect policies systematically either for good or for ill. Any tendency for aid to reward good policies has been overwhelmed by donorse pursuit of their own strategic interests. Burnside and Dollar use a new database on foreign aid to examine the relationships among foreign aid, economic policies, and growth of per capita GDP. In panel growth regressions for 56 developing countries and six four-year periods (1970-93), they find that the policies that have a great effect on growth are those related to fiscal surplus, inflation, and trade openness. They construct an index for those three policies and have that index interact with foreign aid. They have instruments for both aid and aid interacting with policies. They find that aid has a positive impact on growth in developing countries with good fiscal, monetary, and trade policies. In the presence of poor policies, aid has no positive effect on growth. This result is robust in a variety of specifications, which include or exclude middle-income countries, include or exclude outliers, and treat policies as exogenous or endogenous. They examine the determinants of policy and find no evidence that aid has systematically affected policies, either for good or for ill. They estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors' pursuit of their own strategic interests. In a counterfactual, they reallocate aid, reducing the role of donor interests and increasing the importance of policy. Such a reallocation would have a large positive effect on developing countries' growth rates. This paper - a product of the Macroeconomics and Growth Division, Policy Research Department - is part of a larger effort in the department to study the effectiveness of foreign aid. The study was funded by the Bank's Research Support Budget under research project Economic Policies and the Effectiveness of Foreign Aid (RPO 681-70).
3,696 citations
"What explains the success or failur..." refers background in this paper
...Burnside and Dollar (1997) have shown that aid promotes growth only in a good policy environment,...
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Posted Content•
TL;DR: In this article, a new data set on inequality in the distribution of income is presented, and the authors explain the criteria they applied in selecting data on Gini coefficients and on individual quintile groups' income shares.
Abstract: This article presents a new data set on inequality in the distribution of income. The authors explain the criteria they applied in selecting data on Gini coefficients and on individual quintile groups' income shares. Comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage, although differences in the definition of the underlying data might still affect intertemporal and international comparability. Based on this new data set, the authors do not find a systematic link between growth and changes in aggregate inequality. They do find a strong positive relationship between growth and reduction of poverty.
2,637 citations
"What explains the success or failur..." refers background in this paper
...Source: Deininger and Squire (1996). Time in power Number of years the incumbent that signed the reform has been in power....
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...Source: Deininger and Squire (1996)....
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TL;DR: In this paper, a new data set on inequality in the distribution of income is presented, and the authors explain the criteria they applied in selecting data on Gini coefficients and on individual quintile groups' income shares.
Abstract: This article presents a new data set on inequality in the distribution of income. The authors explain the criteria they applied in selecting data on Gini coefficients and on individual quintile groups' income shares. Comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage, although differences in the definition of the underlying data might still affect inter temporal and international comparability. Based on this new data set, the authors do not find a systematic link between growth and changes in aggregate inequality. They do find a strong positive relationship between growth and reduction of poverty.
2,490 citations