Institutionalized Institutionalized Insiders:Insiders:

Board Membership and Loan Board Membership and Loan Commitments at the World BankCommitments at the World Bank

(joint with Ashwin Kaja) (joint with Ashwin Kaja)

Eric WerkerEric WerkerHarvard Business SchoolHarvard Business School

International Political Economy SocietyInternational Political Economy SocietyNovember 14, 2008November 14, 2008

Potential for MisgovernancePotential for Misgovernance

Executive Directors can use their position to Executive Directors can use their position to direct loans and grants to their home countrydirect loans and grants to their home country

We test for correlation between Board We test for correlation between Board membership and World Bank commitmentsmembership and World Bank commitments– Correlation may be driven by other factors, such Correlation may be driven by other factors, such

as development needsas development needs– Good clients may be rewarded with, or seek out, a Good clients may be rewarded with, or seek out, a

seat on the boardseat on the board– Paper will attempt to determine whether “pork Paper will attempt to determine whether “pork

barrel hypothesis” of abusing representative barrel hypothesis” of abusing representative position, or some other factor, is driving position, or some other factor, is driving correlationcorrelation

Empirical SpecificationsEmpirical Specifications

OLS Estimates of IBRD Commitments in US$1996 on Board Membership

Board Member 1.464 1.382   1.509

  (1.99)** (1.97)*   (1.84)*

Board Voting Power     0.539  

      (2.49)**  

Bank Voting Power   0.967 0.781 0.93

    (0.88) (0.71) (0.83)

entry-3 years       -0.835

        (1.15)

entry-2 years       0.503

        (0.65)

entry-1 year       0.054

        (0.07)

exit + 1 year       -0.096

        (0.1)

exit + 2 years       0.912

        (1.02)

Alternate SpecificationsAlternate Specifications Absolute Values:Absolute Values:

– $60M - $72M in additional aid$60M - $72M in additional aid– Statistically significantStatistically significant

Logit (Extensive margin)Logit (Extensive margin)– Consistent sign, weaker p-valuesConsistent sign, weaker p-values

Robustness ChecksRobustness Checks– Eliminate zero-service countriesEliminate zero-service countries– Reset zeroes higherReset zeroes higher– Placebo TestPlacebo Test– Group-year dummiesGroup-year dummies– Restrict to high-rotation groupsRestrict to high-rotation groups

OLS Estimates of IDA Commitments in US$1996 on Board Membership

Board Member -0.007 0.328   0.408

  (0.01) (0.47)   -0.55

Board Voting Power   0.042  

      (0.24)  

Bank Voting Power -0.672 -0.641 -0.71

    (0.51) (0.49) (0.54)

entry-3 years       0.433

        (0.59)

entry-2 years       1.068

        (1.47)

entry-1 year       0.683

        (0.95)

exit + 1 year       -0.452

        (0.64)

exit + 2 years       -0.802

        (1.54)

Who is Better at Capturing Who is Better at Capturing Gains?Gains?

BM*ln(per capita GDP) 0.504        

  (0.78)        

BM*Political Climate   -0.114      

    (1.12)      

BM*post1990     3.126    

      (2.53)**    BM*(>14 Years as ED)       2.294  

        (1.45)  BM*Board Voting Power         1.576

          (2.58)**

Two Surprising ResultsTwo Surprising Results

Board Member 1.835 64.174

  (2.38)** (2.01)**

Alternate Board Member 1.953 19.036

  (3.12)*** (1.09)

BM*Effective Voting Power 0.284

    (1.23)

Design of International Design of International InstitutionsInstitutions

Institutional power at the World Bank can Institutional power at the World Bank can reflect and accentuate national influencereflect and accentuate national influence

Informal processes may mitigateInformal processes may mitigate– But can result in clubs of winners, rather than But can result in clubs of winners, rather than

each country gaming the system for itselfeach country gaming the system for itself

Problem not present at IDAProblem not present at IDA– The role of IO missionThe role of IO mission