Targeted Aid and Capture in World Bank Projects

Abstract

If development projects are to be effective, a minimum requirement is that the funding reaches its intended destination. Yet the history of international development is replete with examples of this not happening. I argue that there will be fewer problems with corruption or other diversions of funding --- which I jointly label capture --- in more precisely targeted projects. More well-defined targeting results in superior accountability relationships because there is greater clarity of responsibility, clearer information about outcomes and improved identifiability of stakeholders. I use an original cross-country, cross-project dataset on the incidence of capture in World Bank-funded investment projects to test the theory. The data show a negative relationship between targeting and capture, and I demonstrate that this relationship is robust to a variety of specifications. In addition, I find that there is a higher baseline likelihood of project capture in countries perceived as more corrupt according to commonly used survey-based measures from Transparency International and the Worldwide Governance Indicators, cross-validating those measures and my own.