Institutionalized Insiders: Board Membership and Loan Commitments at the World Bank (joint with Ashwin Kaja) Eric Werker Harvard Business School International Political Economy Society November 14, 2008

Potential for Misgovernance Executive Directors can use their position to direct loans and grants to their home country Executive Directors can use their position to direct loans and grants to their home country We test for correlation between Board membership and World Bank commitments We test for correlation between Board membership and World Bank commitments –Correlation may be driven by other factors, such as development needs –Good clients may be rewarded with, or seek out, a seat on the board –Paper will attempt to determine whether “pork barrel hypothesis” of abusing representative position, or some other factor, is driving correlation

Empirical Specifications

OLS Estimates of IBRD Commitments in US$1996 on Board Membership Board Member (1.99)**(1.97)* (1.84)* Board Voting Power (2.49)** Bank Voting Power (0.88)(0.71)(0.83) entry-3 years (1.15) entry-2 years (0.65) entry-1 year (0.07) exit + 1 year (0.1) exit + 2 years (1.02)

Alternate Specifications Absolute Values: Absolute Values: –$60M - $72M in additional aid –Statistically significant Logit (Extensive margin) Logit (Extensive margin) –Consistent sign, weaker p-values Robustness Checks Robustness Checks –Eliminate zero-service countries –Reset zeroes higher –Placebo Test –Group-year dummies –Restrict to high-rotation groups

OLS Estimates of IDA Commitments in US$1996 on Board Membership Board Member (0.01)(0.47) Board Voting Power (0.24) Bank Voting Power (0.51)(0.49)(0.54) entry-3 years (0.59) entry-2 years (1.47) entry-1 year (0.95) exit + 1 year (0.64) exit + 2 years (1.54)

Who is Better at Capturing Gains? BM*ln(per capita GDP)0.504 (0.78) BM*Political Climate (1.12) BM*post (2.53)** BM*(>14 Years as ED) (1.45) BM*Board Voting Power (2.58)**

Two Surprising Results Board Member (2.38)**(2.01)** Alternate Board Member (3.12)***(1.09) BM*Effective Voting Power0.284 (1.23)

Design of International Institutions Institutional power at the World Bank can reflect and accentuate national influence Institutional power at the World Bank can reflect and accentuate national influence Informal processes may mitigate Informal processes may mitigate –But can result in clubs of winners, rather than each country gaming the system for itself Problem not present at IDA Problem not present at IDA –The role of IO mission