15 percent rather than 4 percent. Such incentives may help to explain cross-country evidence suggesting an impact of weak institutions and high corruption out of all proportion to a 10 or 20 percent mark-up in the costs of investments.<sup>16</sup> Related to this, the evidence from a large sample of World Bank projects is that, in general, the bigger challenge to achieving results in investment lending is not procurement risk, but delivery risk. Pohl and Mihaljeck found that factors such as cost overruns and delays in delivery are comparatively minor in determining the gap between appraised and re-appraised economic rates of return on Bank projects. It was factors before and after the procurement process which made the largest difference.<sup>17</sup> There is considerable evidence that (additional) transparency and oversight are potentially powerful tools to reduce the development impact of corruption. Not least, this is strongly suggested by World Bank experience working in environments where transparency and oversight are allowed to work. Linked to the literature that suggests strong institutions deliver better aid outcomes,<sup>18</sup> World Bank projects in countries with the strongest protection of civil rights generate economic rates of return 8-22 percentage points higher than projects in countries with the weakest civil rights (the mean rate of return in their sample is 16 percent). There is suggestive evidence that the route for this impact is from civil liberties through citizen voice and government accountability to greater efficiency in government service provision.<sup>19</sup> Specific to construction, evidence on road costs and political rights suggests greater ability to effect change on government contracts can improve outcomes. Kaufmann and Kraay’s ‘Voice and accountability’ indicator measures the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media. Data from World Bank financed roads contracts in 28 countries suggests that those countries which see above average voice and accountability pay $30 per square meter for rehabilitation of a two lane highway compared to $37 in countries with low voice and accountability.<sup>20</sup> Separate data on cost overruns from 130 World Bank financed road projects in 24 countries suggests that countries with voice and accountability scores below the global average see average cost overruns of 46%. This compares to countries with above average voice and accountability, which see cost overruns of only 18% (See Figure Three).<sup>21</sup>

> 16 Kenny, 2009.

> 17 Pohl and Mihaljeck, 1992.

> 18 Wright, 2006, Burnside and Dollar, 1998 –although note these results may be fragile.  A re-analysis suggests institutions do not have a robust impact on aid effectiveness (Rajan and Subramanian, 2005b)

> 19 Isham et. al., 1997.  Beneficiary participation was also found to improve project performance in a sample of 121 World Bank rural water supply and sanitation projects  (Isham et. al., 1994).  Similarly, Dollar and Levin (2005) find that a property rights/rule of law measure is strongly correlated with World Bank investment lending outcomes.

> 20 It should be noted that there is no statistically significant difference between outcomes when GDP per capita is controlled for in a regression analysis.

> 21Voice and accountability measures from <u>http://info.worldbank.org/governance/wgi/index.asp, road</u> project data from http://www.worldbank.org/transport/roads/rd_tools/rocks_main.htm

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