International Institutions and Political Liberalization: Evidence from the World Bank Loans Program
59 Pages Posted: 7 Mar 2014
Date Written: March 5, 2014
How do international institutions affect political liberalization in member states? Motivated by an examination of the World Bank loans program, we argue that institutions can confer prestige in exchange for political reforms. When offered an opportunity to improve their institutionally-conferred status, thereby boosting their international and domestic reputations, states are willing to make policy concessions in exchange. To test our theory, we exploit a unique feature of the World Bank loans program: when a loan recipient reaches a specified level of economic development, it becomes eligible to graduate from borrower status. Although graduation entails losing access to loans, governments typically seek to graduate. We show that governments view graduation as an indicator of the transition from a developing state to a developed state. Using a unique regression discontinuity design, we demonstrate that when states become eligible for graduation, their governments democratize to achieve this enhanced status. Thus, a government's interest in improving its status in the international system can motivate domestic reform.
Keywords: democracy, natural experiment, regression discontinuity, World Bank
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