Crossing the Threshold: An Analysis of Ibrd Graduation Policy

35 Pages Posted: 20 Apr 2016

See all articles by Jac C. Heckelman

Jac C. Heckelman

Wake Forest University - Department of Economics

Stephen Knack

World Bank - Development Research Group (DECRG)

F. Halsey Rogers

World Bank

Date Written: January 1, 2011

Abstract

According to World Bank policy, countries remain eligible to borrow from the International Bank for Reconstruction and Development until they are able to sustain long-term development without further recourse to Bank financing. Graduation from the Bank is not an automatic consequence of reaching a particular income level,but rather is supposed to be based on a determination of whether the country has reached a level of institutional development and capital-market access that enables it to sustain its own development process without recourse to Bank funding. This paper assesses how International Bank for Reconstruction and Development graduation policy operates in practice, investigating what income and non-income factors appear to have influenced graduation decisions in recent decades, based on panel data for 1982 through 2008. Explanatory variables include the per-capita income of the country, as well as measures of institutional development and market access that are cited as criteria by the graduation policy, and other plausible explanatory variables that capture the levels of economic development and vulnerability of the country. The authors find that the observed correlates of Bank graduation are generally consistent with the stated policy. Countries that are wealthier, more creditworthy, more institutionally developed, and less vulnerable to shocks are more likely to have graduated. Predicted probabilities generated by the model correspond closely to the actual graduation and de-graduation experiences of most countries (such as Korea and Trinidad and Tobago), and suggest that Hungary and Latvia may have graduated prematurely -- a prediction consistent with their subsequent return to borrowing from the Bank in the wake of the global financial crisis.

Keywords: Economic Theory & Research, Emerging Markets, Banks & Banking Reform, Labor Policies, Debt Markets

Suggested Citation

Heckelman, Jac C. and Knack, Stephen and Rogers, F. Halsey, Crossing the Threshold: An Analysis of Ibrd Graduation Policy (January 1, 2011). World Bank Policy Research Working Paper No. 5531, Available at SSRN: https://ssrn.com/abstract=1747434

Jac C. Heckelman (Contact Author)

Wake Forest University - Department of Economics ( email )

P.O. Box 7505
Winston-Salem, NC 27109
United States
(336) 758-5923 (Phone)
(336) 758-6028 (Fax)

HOME PAGE: http://www.wfu.edu/~heckeljc/jac.htm

Stephen Knack

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-9712 (Phone)

HOME PAGE: http://econ.worldbank.org/staff/sknack

F. Halsey Rogers

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/hrogers

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