Development organizations Part 2 – Regional Development Organizations – The Asian

Development Bank

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Kilby, Christopher. 2006. Donor Influence in Multilateral Development Banks: The Case of the Asian Development Bank. Review of International Organizations 1 (2):173-95.

Plan

• Who should lead the World

• Regional Development Banks

• How to read

• Politics of ADB lending

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What is the "World Bank“as opposed to the "World Bank Group"?

• International Bank for Reconstruction and Development• IBRD (often called “the World Bank”)

• International Development Association• IDA – created in 1960 – concessional financing

• “WORLD BANK”• IBRD & IDA are tightly connected – work as a single unit

(though the terms of their loans are quite different)

• International Finance Corporation• IFC – lends to private companies for private sector projects. Has its

own building, own executive vice pres. & staff (more “entrepreneurial”)

• Multilateral Investment Guarantee Agency• MIGA – provides insurance to private companies against political

risk3

• Where does the IBRD get most of its funding to lend to developing countries?– Private markets

• Where does IDA get most of its funding?– Returns (interest) from IBRD loans, donor

contributions

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6 types of countries

1. Countries that borrow only from IBRD

2. Countries that borrow only from IDA (not IBRD)

3. IDA/IBRD “blend” countries

4. Problem countries

5. Special cases

6. Too rich to borrow from the World Bank

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Who should lead the World Bank?

• http://www.thedailyshow.com/watch/wed-march-16-2005/add-hawk

• Wolfenson

• Wolfowitz

• Zoellick

• … who’s next? A?

• Another American?

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US leadership of global international institutions

• Between a rock & a hard place

• Must make room for emerging markets

• But need to keep advanced industrial countries on board

• Domestic politics

• Regional solution?

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Asian Development Bank (ADB)

• Founded 1966 – Modeled on the World Bank

• Other development banks:– World Bank (1944)– Inter-American Development Bank Group (1959)– African Development Bank (1966)– European Bank for Reconstruction and Development (1991)

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African Development Bank (1966)• Closed to non-African countries until 1982

• Board of Executive Directors made up of member countries

• The voting power determined by the size of each member's share• Currently 60%-40% between African and “non-regional” member

countries (“donors”) – e.g., US, Japan, China, & Korea (since 1982) http://www.afdb.org/en/about-us/members/

• The largest African Development Bank shareholder is Nigeria with nearly 8.7 percent of the votes (SEE EXCEL FILE)

• “No member country, or a group of countries has veto power; Board decisions are generally made through discussion and consensus rather than through the exercise of voting powers. ” http://www.afdb.org/en/about-us/structure/board-of-governors/

• All members are represented on the AfDB Board of Executive Directors

• AfDB commits approximately $3 billion annually to African countries (only about 6% of development aid to the continent)

• Projects: power supply, water and sanitation, transport and communications, Regional integration infrastructure (transport and power interconnections between smaller African economies), fight against HIV/AIDS 9

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Inter-American Development Bank Group (1959)

• “the main source of multilateral financing in the region” http://www.iadb.org/aboutus/

• The IDB lends money and provides grants. With a triple-A rating, the Bank borrows in international markets at competitive rates. Hence, it can structure loans at competitive conditions for its clients in its 26 borrowing member countries.

• Countries that receive IDB financing also hold a majority of its shares.

• BUT US has 30% of the votes!! EXCEL FILE

– See (Strand, 2003).

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Asian Development Bank (ADB)

• http://www.youtube.com/watch?v=F-qef0vpu74

• Regional/non-regional vote shares: 65/35– Japan: 12.8%– United States: 12.8%– China: 5.4%– India: 5.4%– Australia: 4.9%

• EXCEL (Asia Development Bank Membership.xls) …

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Donor influence inthe Asian Development Bank

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A simple guide to How to read basic “regression” results

1. What is the analysis “explaining”?

Dependent variable, usually in the title of the table

2. What is the unit of analysis?

How many observations… of what? (In IO studies, often “country-years”)

3. What are the independent variables of interest?

Main independent variable(s), Control variables

4. What is the effect of each independent (explanatory) variable?

Just ask: Is the “coefficient” positive/negative?

5. Are the effects statistically significant?

a.Star-gazing *, **, ***

b.Is the standard error <1/2 the size of the coefficient?

c.OR: is the t-stat/z-stat >1.96?

d.OR: is the p-value<0.05?15

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“Robust” ?

Finding holds across different model specifications.

(like garlic?)

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Humanitarian v. Interest

• Donor trade interests and proxies for geopolitical interests appear to play a larger role than do humanitarian factors

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Humanitarian: “Selection”• (“Selection” = who is eligible)

• Poorer and (especially more recently) democratic countries are more likely to receive funds

• BUT:

• More populous countries are less likely to receive funds

• ADB funding does not mirror the distribution of bilateral aid from a group of small donors known for their relatively humanitarian aid programs

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Humanitarian: “Allocation”Conditional on being selected to receive ADB funds

• A country’s level of funding increases with its population—up to a point:

• Funding increases with population except for the largest countries – Notably Bangladesh and Indonesia before 1987 and

China and India since then, which receive dramatically less in comparison to their populations

• Poorer countries receive more funds

• Democracy appears to have played a role earlier in the sample period (1968-86).

• Why 1986-break? – Not until 1986 did the ADB grant China membership - US

Congress opposed– India had restricted access until 1987 - Japan opposition22

How does ADB funding decisions compare to other donors?

• The level of ADB funding does not mirror the distribution of bilateral aid from a group of small donors known for their relatively humanitarian aid programs.

• Who? Small donors: Canada, the Netherlands, Denmark, Norway & Sweden

• However, World Bank loan allocation more closely mirrors them, both within Asia & globally!

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Interests: “Selection”

• Japanese Interests:

– Japanese trading partners

– & countries favored by Japanese bilateral aid are more likely to receive ADB funds

• US Interests (“more complex”?)

– Countries favored by U.S. bilateral aid are more likely to receive ADB funds

– But countries with strong U.S. trade ties are less likely to receive ADB funds (?)

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Interests: AllocationConditional on being selected to receive ADB funds

• Donor interest variables are significant primarily in the latter half of the sample period

• During that period, higher Japanese bilateral aid and higher U.S. bilateral aid are both associated with more ADB funding

• The link is 3 times larger for Japanese bilateral aid!

• Voting alignment with Japan in the UN is associated with less ADB funding during 1968-86 and with more ADB funding during 1987-2002 (because of China and India)

• China & India tended to get less than their populations would indicate, but more in years they voted with Japan at the UN General Assembly

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Substantive lessons from today• Regional development organizations have a similar

governance structure to the World Bank

• But Regional hegemons tend to play the role that the “G5” plays at the World Bank

• Big players:– Asian Development Bank: Japan & US– African Development Bank: Nigeria & US (France?)– Inter-American Development Bank: US & Brazil, Argentina

• Do governments use these International Institutions to pursue foreign policy goals?

• Evidence on the Asian Development Bank suggests yes

• Research on – African Development Bank & Inter-American Development Bank– Could be you! 26

Today’s skill:

• How to read results from regression analysis of statistical data

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Thank youWE ARE GLOBAL GEORGETOWN!

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