Some development aid gets misdirected. Did the World Bank try to suppress a paper saying so?

When the World Bank disperses aid to a poor country, the amount of cash in offshore accounts controlled by the country’s elites has increased by about 7.5 percent, according to a new working paper. This finding suggests that some share of the aid is being diverted or stolen.

On its own, this shouldn’t be an earth-shattering revelation. Every major organization that works in developing countries combats corruption, bribery, and general misuse of funds; it’s important to take strict measures to combat theft, of course, but the existence of some level of theft doesn’t render the aid pointless or ill-advised.

But when economists at the research division of the World Bank — which uses the bank’s vast troves of data and resources to do important economic research meant to be politically independent from the bank — submitted the paper, its publication was delayed for internal review.

Now, the World Bank’s chief economist has resigned after only 15 months on the job, one of the paper’s authors has published it on his own website, the bank relented and published it officially a few hours later, and economists around the world are puzzling over whether the World Bank really tried to suppress some research that made it look bad.

The paper that the World Bank may have tried to suppress

Authored by economists Jørgen Juel Andersen, Niels Johannesen, and Bob Rijkers, the paper, “Elite Capture of Foreign Aid Evidence from Offshore Bank Accounts,” looks at “aid capture” — aid making it to a country’s elites instead of its people.

They find that when a country gets aid, “disbursements to highly aid-dependent countries coincide with sharp increases in bank deposits in offshore financial centers known for bank secrecy and private wealth management, but not in other financial centers.” In other words, shady bank account holdings go up, while normal bank account holdings don’t.

There are several reasons to suspect, based on this data, that aid is being diverted to the personal accounts of wealthy individuals. Offshore bank accounts are “overwhelmingly concentrated at the very top of the wealth distribution” — so among the elites in a country, not the people who are supposed to be receiving aid. The authors “observe a sharp and immediate increase in deposits” the quarter the World Bank aid money is disbursed, but not in subsequent quarters.

And the authors find that money flows only to banks with a reputation for protecting client secrecy, not to banks in general — so it’s not just that more legitimate money is being suddenly invested internationally. Overall, despite the very real limitations of this data, it’s reasonable to say that the flows of money likely represent corrupt “capture” of money meant to go to aid projects.

How bad is the problem? On average, the authors write, the “implied leakage rate is around 7.5 percent,” and it’s higher when aid is a bigger percentage of GDP. Notably, there’s really not much evidence of any leakage when the aid represents 1 percent of GDP or less. When the aid represents 3 percent of GDP or more, though, average leakage is 15 percent.

That, the authors write, supports worries “that very high levels of aid might foster corruption and institutional erosion.”

The paper appears meticulously written, exploring and critiquing many alternative explanations for the jump of wealth in private bank accounts. It still needs to be peer-reviewed and published, but it will likely be useful in designing future aid programs to be less susceptible to corruption.

But for a while, it was unreleased but “conditionally accepted” in the World Bank’s working paper series (a seemingly unusual circumstance). What happened?

What we know about the delays in paper publication

On February 13, the Economist broke the news of the World Bank’s delays in publishing the working paper. “It passed an exacting internal review by other researchers in November,” they reported. “But, according to informed sources, publication was blocked by higher officials … The bank insists a final decision on publication has not been made and that it still has legitimate concerns about the paper.”

Furthermore, the Economist observed, “the integrity of the bank’s research is meant to be safeguarded by its chief economist,” Yale economics professor Pinelopi “Penny” Goldberg, who unexpectedly resigned this week for reasons that remain unclear. (Goldberg declined to comment for this story.)

The Economist article caused a stir. “The Economist reports our paper was blocked by WB top management, connecting this to Penny Goldberg’s resignation,” Andersen, one of the paper’s authors wrote on Twitter, has pointedly not disputed either allegation.

Someone leaked the paper to the Financial Times, which published a scathing analysis, writing: “it is clearly highly embarrassing that an organisation which aims to do good in developing countries may be exacerbating the already wide chasm between the haves and have-nots. … That is scant reason to keep the research from public view.”

On February 18, one of the authors — Johannesen — published the paper on his own website. A few hours later, the World Bank apparently made its decision about publication, and put the paper up too. (In a statement, the organization wrote, “We fully support our research department’s work to generate independent, relevant, peer-reviewed research, including on the important topic of illicit financial flows.” The World Bank did not respond to a request for comment from Vox.)

What to make of all this? Well, for one thing, it seems that the World Bank screwed up — and screwed up badly. The allegations that the paper was blocked made it look like the bank doesn’t value the independence of the researchers who use their data to explore key questions in global development, even in the event that the reasons for the delay were entirely innocent. And if papers like this are getting blocked, that suggests the bank’s institutional culture could also be deterring researchers from pursuing research that might yield unflattering results for the bank in the first place. It’ll take time and effort for the World Bank to rebuild trust on that front.

But the fact that the alleged suppression didn’t work at all is encouraging. The chief economist of the World Bank resigned. Sources told the Economist about it. Someone leaked the paper to the Financial Times. The paper’s authors wrote not-very-oblique tweets about it. Their angry colleagues rallied around them.

It’s very difficult to suppress research in the modern era. The people whose research you suppress can go to the press, or publish it themselves on their own websites, and the research community can discuss and draw conclusions for itself on social media. There are more ways than ever for the truth to get out — and that’s good news, as rigorous research like this is badly needed if development aid is to do as much good as possible.

Sign up for the Future Perfect newsletter and we’ll send you a roundup of ideas and solutions for tackling the world’s biggest challenges — and how to get better at doing good.

Future Perfect is funded in part by individual contributions, grants, and sponsorships. Learn more here.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *