Another way to assess the importance of anticipation effects is to examine directly the correlation between World Bank project _approvals_ and changes in output. If anticipation effects are important, one would expect that consumption and output are more likely to react at the time that the project is approved, rather than when the spending is actually implemented. The difficulty in doing this is that, as discussed earlier, project approvals are potentially endogenous responses to contemporaneous macroeconomic conditions. In order to identify the impact effect of project approvals on output, it is necessary to somehow distinguish between projects that are approved for cyclical reasons and those that are not.

I do this by consulting the documentation for individual projects to assess whether or not their stated objectives suggest that the projects were a response to a contemporaneous macroeconomic shock. Doing so exhaustively for all projects in my sample is difficult given the large number of projects involved (in the 29 countries I consider, there are 1516 projects approved since 1985). Instead, I selected a random sample of 10 projects in each of 10 countries, and consulted the statement of project objectives for each of these 100 projects.<sup>13</sup> Based on these, I identified 10 projects where the statement of project objectives clearly suggested cyclical rationale for the approval of the project. Not surprisingly, these 10 projects approved for countercyclical reasons also disburse much faster than typical World Bank projects: several disburse in just one or two years, and the longest takes only four years after project approval to disburse fully. Based on this regularity, I isolate all those projects that required more than 4 years to fully disburse, and assume that these are unlikely to have been approved for cyclical reasons. In my full sample of 1516 projects, 79 percent of projects accounting for 67 percent of total approved value fall in this category of slow‐disbursing projects that plausibly are not cyclically‐ motivated. Moreover, this is a conservative way of identifying such non‐cyclical projects, because it is

> investments on output when there is time‐to‐build in public capital.  In their model, public investment spending plans are announced in advance and are implemented over time, but public capital only becomes productive when the project is fully completed.  In this environment, the initial neoclassical labour supply and investment responses to the announcement of the spending plan are muted because private agents would prefer to postpone investments and labour until the future when public capital becomes productive and raises the marginal products of private capital and labour.  On the other hand, when the spending is complete, there are positive responses of labour supply, investment, and output due to the complementary effects of public capital.

> 13 For completed projects I relied on the Implementation Completion Report (ICR), while for currently ongoing projects I relied on either Project Approval Documents (PAD) or Project Information Documents (PID).  These documents are publicly available for individual projects at <u>http://www.data.worldbank.org.   A summary of the</u> statements of project objectives any my classification based on them for all 100 projects is available upon request.

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