Although the IEG data set on project exits covers the period 1975 to 2015, this paper focuses primarily on the years 1995 to 2015 (and in some instances goes back to 1985), to coincide with major reforms to the project assessment system that took place after the mid‐1980s. Specifically, the project rating system was introduced in the 1980s. Initially the rating system was based on a 2 point scale (i.e. satisfactory/not satisfactory). The ratings were then expanded to a four‐point scale in 1993, including “Highly unsatisfactory” and “Highly satisfactory”. In 1994 this scale was further expanded to the current six point scale including Moderately Unsatisfactory and Moderately Satisfactory. Prior to 1980, project performance reviews did not include outcome ratings. However, imputed values for project performance (Successful/Unsuccessful) prior to 1980 were derived in the mid‐1980s when the IEG database on project exits was established. During this time, “early warning” variables or flags to monitor the risk of the project not meeting its stated objectives were also introduced.

Over the period 1970‐1980, project performance reviews were summarized in Project Performance Audit Reports (PPARs), which were prepared by IEG. In 1982, Project Completion Reports (PCRs) were introduced, which were prepared by task teams. IEG reviewed these PCRs, and submitted them to the Board with an IEG cover note that summarized its independent assessment and performance ratings. In addition, during the period 1994‐1995, the Implementation Completion Report (ICR), a self‐assessment instrument currently in use, was introduced, wherein task teams assessed the degree to which a project had achieved its intended objectives. Also at this time, IEG began to review and validate all ICRs and for a random sub‐sample would also conduct a more detailed performance audit (from which Project Performance Audit Reports are produced) that typically include data collection at the project site and are usually completed 3 to 4 years after the initial ICR has been completed by the task team. As a result, this paper uses the PPAR for a particular project, to measure performance; the ICR rating is used in cases where no PPAR has been completed for a particular project.

Denizer, Kaufmann and Kraay (2013) provide more details on the data generating process of the IEG data set and also note some methodological issues that may have a bearing on the regressions that link the quality of economic analysis to project performance. The first point to note, however, is that unlike Denizer et al., who include budget support operations in their analysis, this paper is limited to investment financing projects, which account for 82 percent of total projects and 61 percent of total financing in our sample between 1995 and 2015, because these are the operations that undertake the type of economic analysis that is the focus of this paper.

Denizer et al. make note of three key issues that may affect the regression results: First, project ratings are based on success in attaining the stated objective of the project rather than a common standard across all projects and over time. The rationale for this may be partly due to the difficulty in setting common standards across projects in different sectors (i.e. roads relative to teacher training, or civil service reform projects). However, the lack of a common standard across projects and over time may lead to bias in the regression estimates. In addition, the standards for setting development objectives and evaluating success relative to a given objective may have changed over the past 30 years. To account for these potential effects, we follow Denizer et al. to construct a set of dummy variables that correspond to the five‐year period over which the project was evaluated (i.e. 1980‐84, 1985‐89, 1990‐94). These dummies are included along with their interactions with a set of sector dummies.

Another set of concerns pertains to the objectivity of the ICRs which may reflect the views of the task team leader who may not be completely candid about the project shortcomings. Denizer et al. show that there is no significant difference in ratings on average between the team leader’s assessment and the IEG’s validation/audits. We also get the same results using a data sample that includes more recent years 10