Business and Politics As the World Bank Turns: Determinants of IDA Lending in the Cold War and After

How does the internal organization of a foreign aid donor affect its aid allocation decisions? Despite the voluminous literature on the political economy of foreign aid, little systematic scholarship exists on this topic. This paper analyzes the allocations of the International Development Association (IDA), the World Bank’s lending arm for the poorest countries, to all eligible countries between 1977 and 2005. While factors such as a country’s need and its policy environment have consistently impacted IDA’s allocation decisions, other factors have changed in important ways. For example, IDA disbursements do not follow US aid disbursements in the post–Cold War period the way they did during the Cold War. And most strikingly, IDA’s allocations have become tightly linked to debt owed to IDA’s sister organization, the International Bank for Reconstruction and Development (IBRD). While IDA used to shy away from countries with higher debt to the IBRD, the last two decades have seen IDA engage in apparently defensive lending for the IBRD, lending more to countries with outstanding balances to that institution. The results suggest greater focus on the internal structures of donors would yield insight into their allocation decisions.