at high levels (typically 1 percent).<sup>50</sup> In regional terms, PSM projects are more concentrated in Africa and Latin America and the Caribbean (LAC) than non-PSM projects.<sup>51</sup> PSM projects are on average targeted toward countries with a slightly higher degree of political and civil liberties than non-PSM projects. This finding holds based on all major indicators of political and civil liberties employed in this paper. For example, PSM projects were on average targeted toward countries with an average “polity” score of 2.6, compared to an average score of 1.8 for non-PSM projects (on a scale from -10 [most authoritarian] to 10 [most democratic]; see annex table A.3).<sup>52</sup> By contrast, there is no statistically significant difference in the number of political parties in countries with PSM projects and those with non-PSM projects (see annex table A.3).

PSM projects are targeted toward countries with significantly higher official development aid (ODA) flows (as a share of gross national income, GNI) than are non-PSM projects. On average, PSM projects target countries with net ODA flows of 9.5 percent of GNI, compared to 7 percent for non-PSM projects (see annex table A.4).<sup>53</sup> There is some evidence, but not strong, that PSM projects are targeted based on needs—that is, toward countries with slightly lower initial administrative capability (see annex table A.3). On average, all CPIA scores relating to public administration (CPIA 12 to 16) are lower for the average country targeted by a PSM project than for the average country targeted by a non-PSM project. But these differences are small and only statistically significant for the quality of budgetary and financial management (CPIA 13, at the 10 percent significance level) and for transparency, accountability, and corruption in the public sector (CPIA 16, at the 5 percent significance level).<sup>54</sup> On average, PSM projects are not targeted toward countries that are significantly richer or poorer (in terms of GDP per capita) than countries with non-PSM projects (see annex table A.4). But, interestingly, PSM projects appear to be targeted toward countries with a significantly lower growth rate. At the time of project approval, the average GDP per capita growth rate in countries with PSM projects was 2.2 percent (with a large standard deviation of 4.8 percentage points) compared to 2.9 percent for the average nonPSM project (see annex table A.4).<sup>55</sup>

> 50 As a standardized measure that can help to compare the order of magnitude of these differences across covariates, annex tables A.3 and A.4 report the difference in means between PSM and non-PSM projects in terms of the number of standard deviations of the distribution of nonPSM projects. 51 Please refer to Blum (2014) for details. 52

> This difference is statistically significant at the 10 percent significance level. 53 For countries with “upstream” PSM projects, this difference is particularly striking. They receive an average of 12.4 percent of their GNI in form of (net) ODA flows—nearly twice as much as countries with non-PSM projects. This difference is statistically significant at the 1 percent significance level. One possible explanation for this could be that donors emphasize PFM reforms—the most important PSM reform theme in upstream projects—in countries that receive large amounts of ODA, with the view of enhancing governments’ capacity to manage aid money through their PFM systems. For details, please refer to Blum (2014).

> 54 Similarly small differences are manifest in terms of the WGI government effectiveness scores (statistically significant at the 10 percent significance level) and the ICRG Bureaucratic Quality Rating (statistically significant at the 5 percent significance level).

> 55 This difference is statistically significant at the 1 percent significance level.

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