The Role of the World Bank in the Transfer of Policy Knowledge on Trade Liberalisation

This paper uses theories of policy learning and of policy-making to examine how global institutions such as the World Bank can influence policy choices by developing countries in the area of trade liberalisation. In pure learning by doing, policy choices are based on information relating to the history of an active policy; there is no information on alternative policies. New information on priors provides an incentive to choose a different policy. In the case of social learning, policy-makers can observe the policies chosen by other actors, but the signals those other actors receive is unobserved. External agents (global institutions of knowledge transfer) can influence policy choice by altering priors, providing technical advice or providing information on the (unobserved) effects of the policy choices of others. The actions of external agents are likely to encourage policy herding, and this need not be on the optimal policy (from the perspective of individual countries). If so, the reputation of the World Bank as a ‘purveyor of global policy knowledge’ may be undermined. • Paper prepared for the conference on ‘Political Economy of Policy Reform’, Tulane University, New Orleans, 9-10 November 2001. Oliver Morrissey is Reader in Development Economics and Director of CREDIT, School of Economics, University of Nottingham. Doug Nelson is Professor, Murphy Institute of Political Economy, Tulane University, and an External CREDIT Fellow. Contact: [email protected]. Morrissey and Nelson, World Bank and Policy Learning 2