International Institutions and Political Liberalization: Evidence from the World Bank Loans Program

Abstract

How do international institutions affect political liberalization in member states? Motivated by an examination of the World Bank loans program, we show that institutions can incentivize liberalization by offering opportunities for countries to become associated with advanced, wealthy members. In the World Bank, when a loan recipient reaches a specified level of economic development, it becomes eligible to graduate from borrower status to lender status. Using a regression discontinuity design, we demonstrate that this graduation eligibility causes states to improve their domestic behavior with respect to human rights and democracy. Wedding qualitative and quantitative evidence, our results suggest that the desire to become a member of this elite group is responsible for motivating member states to reform due to states’ beliefs that this membership brings diffuse international and domestic benefits.

Keywords: Aid, Democracy, Human Rights, International Institution, Regression Discontinuity