Choosing to Target: What Types of Countries Get Different Types of World Bank Projects

Well-governed countries are more likely to make use of foreign aid for the purposes of economic development and poverty alleviation. Therefore, if aid agencies are operating in the name of development, these countries should receive more aid and categorically different types of aid as compared to poorly-governed countries. In poorly-governed countries, aid should be given in a form that allows for less discretion. Using an original dataset of all World Bank projects from 1996 to 2002, I distinguish programmatic projects from investment projects and national from sub-national investment projects. If the World Bank allows for more discretion in well-governed countries, then it will choose to provide programmatic and national aid for these recipients. I show evidence that the World Bank provides a larger proportion of national investment lending in better governed countries. With regard to programmatic lending, however, I find mixed evidence. Among IDA-eligible countries, good governance is surprisingly associated with lower proportions of programmatic aid, whereas for IBRD borrowers, good governance is associated with a higher proportion. I subject these results to a number of robustness tests. I also confirm the existing result in the literature that the World Bank provides larger overall amounts of aid to better-governed countries.