Aid effectiveness: The case of World Bank assistance to Eastern Europe

I investigate the effectiveness of foreign aid and focus on World Bank activities in Eastern Europe. This donor and these recipients have not been analyzed sufficiently before. Another novel contribution is that I first examine recipient selection and distinguish between the effect on growth of aid flows and that of donor and recipient considerations driving this selection.; In Chapter 1, I introduce the World Bank and describe its structure. I introduce Eastern Europe, the newest region of western donor involvement, and discuss its distinguishing characteristics. I elaborate a theory of the Bank's and recipient countries' joint decision to sign aid agreements. I highlight three competing influences on Bank motivations---political influence of major shareholders, technocratic criteria, and staff bureaucratic incentives. I argue that these main influences are often at odds and contribute to suboptimal outcomes. Recipients face a tradeoff between the benefits and costs of Bank's assistance. In addition to the purely financial, the benefits can be also political, when Bank involvement strengthens the reformers' hand versus domestic opposition and provides an outsider on whom to blame the pains of reform. The costs arise from Bank conditionality.; In Chapter 2, I estimate a model of the Bank's and recipients' joint decision to sign aid agreements. Previously, these decisions have been modeled incorrectly or ignored altogether. I find not only that the two players' decisions depend on different considerations, but that their choices reflect the competing influences that the theory predicts. Analysis of the Bank's aid allocation decisions further supports the theoretical predictions.; In Chapter 3, I analyze the effect of Bank assistance on recipient growth, controlling for the joint decision to sign aid agreements. I find that Bank assistance has contributed to growth in Eastern Europe. However, conditions that drive recipients' decisions to seek Bank involvement have a more significant positive effect.; In Chapter 4, I test the theoretical predictions with a qualitative examination of Bank involvement in Poland and Bulgaria throughout their transition. The evidence based on personal interviews with government officials and Bank staff, as well as academic and journalistic reports, confirms the findings of the statistical analyses.