# **2 Public investment quality index: Estimation and properties**

# **2.1. Data and methodology**

**_Project Performance Ratings Database._** We build our public investment quality (PIQ) index using publicly available data from the World Bank Project Performance Ratings Database. These ratings are based on the evaluation of World Bank projects carried out impartially by the World Bank’s Independent Evaluation Group (IEG).<sup>6</sup> The database reports the results of project assessments aimed at evaluating the relevance of project objectives and design, project outcomes relative to stated objectives, and the efficiency of resource use in achieving the project’s objectives. The ratings are based on data from IEG’s Implementation Completion Report Reviews — these are desk reviews of the World Bank’s Implementation Completion and Results Reports (ICR) of lending — projects and Project Performance Assessment Reports (PPARs) which are independent fieldbased project evaluations based on site visits and interviews with stakeholders. The World Bank Project Performance Ratings Database covers 5,900 projects in 150 countries over the period 20002022.<sup>7</sup>

**_Recap of the IEG project evaluation methodology._** At the end of every project funded by the World Bank, the evaluation team prepares evaluation reports and ratings. During the IEG evaluation process, the team conducts an independent, desk-based critical review of the evidence, results, and ratings of the completed project. Using evidence from the ICR and an interview with the last task team leader, IEG establishes its own ratings of the project based on the World Bank evaluation criteria. These ratings employ a harmonized methodology and a set of standardized scales, ensuring full comparability across countries and over time. The IEG methodology provides a granular metric based on six potential scores, ranging from “Highly unsatisfactory” to “Highly satisfactory.” Before being publicly disclosed on the portal, project review reports, along with evaluation ratings, undergo thorough reviews and approvals from designated review coordinators, managers, and World Bank global practices.<sup>8</sup>

**_Construction of the PIQ index._** For the purposes of our analysis, we convert the qualitative project outcome ratings into numerical scores that range between 1 and 6: 1 = “Highly unsatisfactory”, 2 = “Unsatisfactory”, 3 = “Moderately unsatisfactory”, 4 = “Moderately satisfactory”, 5 = “Satisfactory”, and 6 = “Highly satisfactory”. As we focus on public investment, we only use the data on projects in the Investment Project Financing (IPF) category.<sup>9</sup> These investment projects finance activities that create the physical and social infrastructure needed for sustainable economic development over medium- to long-term horizons (5-10 years).<sup>10</sup> We augment the IEG project

> 6 IEG is an independent unit within the World Bank Group responsible for assessing its programs and activities. All the data used to build the index are available on the website of the Independent Evaluation Group – World Bank Project Performance Ratings: http://ieg.worldbankgroup.org/ratings.

> 7 As of August 2022. For the estimations we use the period 2000-2021.

> 8 Additional details on the methodology of project evaluations with guidelines for each evaluation step are reported in IEG (2017) and are available at the dedicated web portal: https://ieg.worldbankgroup.org/methodology.

> 9 We thus do not incorporate other project categories, including Program-for-Results Financing, Development Policy Financing.

> 10 Most of these projects focus on infrastructure, human development, agriculture, and public administration. One should note, however, that, while IPF investment projects are generally associated with physical and social

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