Unfortunately, not really, according to Brown University Professor Ross Levine’s presentation at the Aid Watch conference “What would the poor say?” on February 6, 2009. Professor Levine argues that the Bank’s incentives to keep the lending money flowing trumps any incentive to get the advice right on important issues.
The World Bank acted to suppress data collection on bank regulation because it didn’t like the findings that were emerging (not that an obscure topic like financial regulation is that important). (2 minutes, 6 seconds):
Ross Levine on a Bank Regulation Study at the World Bank from DRI on Vimeo.
Was it that the Bank could not afford to spend $50,000 to collect data on what works in bank regulation? Well they did manage to spend $4 million on a “Growth Report” whose usefulness Professor Levine regards as somewhere between that of a pet rock and a clueless bank regulator (54 seconds):
Ross Levine on How Much is A Lot of Money for the World Bank? from DRI on Vimeo.
3 Comments
It sounded juicy, but I was disappointed that he didn’t say how he came to the conclusion that the World Bank didn’t like the findings. Is there a source somewhere with more evidence for his conclusion?
It is indeed the shame that WB stoped its Bank Regulation survey (old data here . Although, the data consisted of presence/absence of long list of regulatory measures (self-reported by national regulators), it was useful.
On the other hand, the arguments that Barth, Caprio and Levine (2006) derived from these data are biased. They created what they call a Private Monitoring Index in such a way that absence of explicit deposit insurance and reliance on credit rating agencies improves regulation. This then biased their regressions towards and allowed them to argue that less regulation is good for emerging countries.
In any case, that is not a reason to abandon data collection, but to build a better indicators.
One thing that prevents the WB from becoming a knowledge bank is its need to earn income. There is no good business model in providing ‘knowledge’ to poor countries. So it needs large loans to cross-subsidize small loans and knowledge offerings. This tends to compromise its objectivity as an honest knowledge broker. On the other hand pure knowledge giving is subject to its own disorders and needs the oxygen of real world transactions like lending. I said something about this in my book in case anyone is out there.