Smets, LodewijkKnack, Stephen2014-06-252014-06-252014-06https://hdl.handle.net/10986/18754This study investigates the impact of World Bank development policy lending on the quality of economic policy. It finds 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 specifications 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, fiscal and structural policies, and considers only policy loans targeted at improvements in those areas. Previous studies finding 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 based on earlier loans are consistent with claims by the World Bank that it has learned from its mistakes with traditional adjustment lending.en-USCC BY 3.0 IGOACCOUNTABILITYADJUSTMENT LOANSADVERSE EFFECTSAGRICULTUREAICAUDITSBALANCE OF PAYMENTSBANK POLICYBASE YEARBEST PRACTICEBONDBORROWINGBORROWING COUNTRIESBUDGET DEFICITSBUSINESS CYCLECHECKSCOMMITMENTCOMMITMENTSCOMPARATIVE ECONOMICSCONDITIONALITYCORRUPTIONCOUNTERPARTCOUNTRY RISKCREDITORSDEBTDEBT POLICYDEBT SERVICEDEMOCRACIESDEMOCRACYDEMOCRATIC INSTITUTIONSDEREGULATIONDEVELOPING COUNTRIESDEVELOPMENT ASSISTANCEDEVELOPMENT ECONOMICSDEVELOPMENT POLICIESDEVELOPMENT POLICYDEVELOPMENT STRATEGIESDEVELOPMENT STRATEGYDIMINISHING RETURNSDISBURSEMENTDISBURSEMENTSDUMMY VARIABLEECONOMETRICSECONOMIC PERFORMANCEECONOMIC POLICYECONOMIC REFORMECONOMIC RISKECONOMIC SYSTEMSECONOMICSECONOMIES OF SCALEEMPLOYMENTENFORCEABILITYENVIRONMENTAL POLICIESEQUATIONSFINANCIAL FLOWSFINANCIAL MANAGEMENTFINANCIAL SECTORFINANCIAL SUPPORTFISCAL DEFICITSFISCAL DISCIPLINEFISCAL POLICYFOREIGN AIDFUNCTIONAL FORMSFUTURE RESEARCHGDPGDP PER CAPITAGOVERNMENT DEBTGOVERNMENT POLICIESGOVERNMENT SPENDINGGROWTH MODELSHUMAN CAPITALHUMAN DEVELOPMENTHUMAN RESOURCESINCOMEINCOME GROWTHINCOME LEVELINFLATIONINFLATION RATEINTERNATIONAL BANKINTERNATIONAL COURTINTERNATIONAL ECONOMICSINVESTIGATIONINVESTINGLENDERSLENDING DECISIONSLENDING INSTRUMENTLENDING PORTFOLIOLENDING PROGRAMSLENDING VOLUMELOANLOAN AGREEMENTMACROECONOMIC ADJUSTMENTMACROECONOMIC MANAGEMENTMACROECONOMIC POLICIESMACROECONOMIC POLICYMACROECONOMIC STABILITYMARKET REFORMMONETARY POLICYOPEN MARKETSPER CAPITA INCOMEPOLITICAL ECONOMYPOLITICAL LEADERSPRIVATE DEBTPRIVATE INVESTMENTPUBLIC SERVICESREAL GDPREGRESSION ANALYSISREVENUE MOBILIZATIONRULE OF LAWSALSCALE EFFECTSSECURE PROPERTY RIGHTSSTRUCTURAL ADJUSTMENTTOTAL DEBTTRADE POLICYTRANCHESTRANSPARENCYTRANSPORTURBAN DEVELOPMENTWORLD BANK LENDINGWORLD BANK LOANWORLD BANK LOANS10.1596/1813-9450-6924