Many developing countries need the World Bank’s capital less and less. What role should the Bank play in the 21st century? This paper argues that many features of the Bank today reflect a new role. That role, resting on the economic theory of bargaining and public good provision, is to reduce extreme poverty. Donor subsidies to the Bank already reflect this role, which implies new ways to structure and evaluate the Bank’s work.
Paul Collier's new book, The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It, argues that many developing countries are doing just fine and that the real development challenge is the 58 countries that are economically stagnant and caught in one or more "traps": armed conflict, natural resource dependence, poor governance, and geographic isolation. In a review of the book recently published in Foreign Affairs, CGD research fellow Michael Clemens explores whether or not Collier's proposed solutions constitute a practical middle path between William Easterly's development pessimism and Jeffrey Sach's development boosterism.
The international goal for rich countries to devote 0.7% of their national income to development assistance has become a cause célèbre for aid activists and has been accepted in many official quarters as the legitimate target for aid budgets. The origins of the target, however, raise serious questions about its relevance.
The Trouble with the MDGs: Confronting Expectations of Aid and Development Success - Working Paper 40
*REVISED Version September 2004
The Millennium Development Goals (MDGs) are unlikely to be met by 2015, even if huge increases in development assistance materialize. The rates of progress required by many of the goals are at the edges of or beyond historical precedent. Many countries making extraordinarily rapid progress on MDG indicators, due in large part to aid, will nonetheless not reach the MDGs. Unrealistic targets thus may turn successes into perceptions of failure, serving to undermine future constituencies for aid (in donors) and reform (in recipients). This would be unfortunate given the vital role of aid and reform in the development process and the need for long-term, sustained aid commitments.
What should the World Bank optimally do with the US$10 to $20 billion it can loan each year? Has it, in fact, done what is optimal? This study suggests a simple framework within which to measure the World Bank against an optimal international public financier for development. It goes on to argue that a careful treatment of the empirical evidence on Bank lending strongly contradicts optimal behavior under different assumptions. The evidence, in fact, rejects any notion that the Bank has substituted for private capital or that it has successfully catalyzed private development finance.