Abstract

We revisit the relevance of the World Bank’s Country Policy and Institutional Assessment (CPIA)against growth performance, with attention to possible biases arising from qualitative andquantitative changes in the CPIA methodology. The CPIA, introduced in the late 1970s, had aseries of extensive revisions in the late 1980s and the early 1990s, placing more emphasis oninstitutional capacity and social policies. We reexamine a claim by previous studies that the CPIAis weakly relevant for economic performance, by running cross-country growth regressions with apanel dataset covering 146 countries between 1995 and 2015, a period over which the CPIA iscomparable. By addressing the possible biases arising from the methodological changes, we showthat the CPIA is a good predictor for future growth.

Highlights

  • This study revisits the relevance of the World Bank’s Country Policy and Institutional Assessment (CPIA) for predicting economic growth, with attention to possible biases arising from qualitative and quantitative changes in the CPIA methodology

  • Using a cross-country panel dataset of 146 developing and emerging countries between 1995 and 2015, we show that the CPIA is positively correlated with future growth rates

  • We revisit the relevance of the CPIA against country performance, with proper correction for possible biases arising from qualitative and quantitative changes in the CPIA methodology

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Summary

Introduction

This study revisits the relevance of the World Bank’s Country Policy and Institutional Assessment (CPIA) for predicting economic growth, with attention to possible biases arising from qualitative and quantitative changes in the CPIA methodology. Given limited financial resources from donors, effective use of development assistance is important. Using a cross-country panel dataset of 146 developing and emerging countries between 1995 and 2015, we show that the CPIA is positively correlated with future growth rates. This intertemporal correlation has been scrutinized by external independent reviews and empirical studies that the content of the CPIA represents the policies and institutions, identified in the economics literature, that lead to growth and poverty reduction

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