the conditions that come after it (see Smets, 2018).<sup>20</sup> Indeed a large theoretical and empirical literature shows that without recipient commitment, conditional financing is unlikely to induce policy reform (see, e.g, Kilby, 2005; Svensson, 2000; World Bank, 2001; World Bank, 2005).<sup>21</sup> Several aspects of the process are likely to support improvements in government economic policy. First, policy‐based lending requires much information. Typically, a loan or credit will be preceded by studies and reports such as a public expenditure review, a country economic memorandum, sectoral studies, an investigation of the public debt, and so on. Sound evidence about the costs and benefits of policy proposals may reduce uncertainty about the distributional impacts of reform and thus induce government buy‐in (Fernandez and Rodrik, 1991; Majumdar and Mukand, 2004). Relatedly, when countries lack the technical capacity to identify high‐quality public policies, policy makers will be inclined to stick to the status quo. Providing high‐quality evidence may lead to an increased valuation of public policies and a willingness to engage in reform (Besley and Persson, 2011).

Second, there is regularly a process of policy dialogue which occurs before a formal discussion of an operation, and which always involves discussions about macroeconomic ‘adequacy’. This process may include seminars or official visits to other countries with similar economic reform challenges. Policy debate has the power to influence the mindset of policy makers, which may result in an increased commitment to reform (see Smets, 2018). Haggard and Webb (1994) note that in the long run, the transmission of ideas may be more important for policy reform than conditional financing.

Third, between the formal request for an operation and the signing of a loan agreement, several months may pass. The government will typically use this time to consult with the populace about the reform process. Khemani (2017) argues that communication by leaders is a critical component for reforms to be successful.

Finally, the list of prior actions (and/or tranche release conditions) in the program document that is finally approved by the Board of the Bank is not the sum total of the government’s reform effort. The preparation process typically identifies a broader swathe of reforms, which the list of prior actions adumbrates but does not comprehensively define. The requirement that the country’s macroeconomic policy stance be ‘adequate’ involves the World Bank team in lengthy policy debates and often helps governments to identify policy reforms, some of which might not be reflected in the program matrix. Sometimes task team leaders will 20 A potential econometric reason why we do not find an effect of the number of policy actions is measurement error. That is, policy actions in policy‐based lending are heterogeneous in scope and may have a differing impact, so that their number measures with error the ‘true’ force of the reform. This gives rise to attenuation bias which may diminish the estimate of γ. However, we performed a rough econometric test using lagged values and failed to find a heterogeneous impact of policy actions. 21 This is not to say that conditions and financing are of no use whatsoever. For instance, conditions are needed for fiduciary reasons while budget support funds may help in closing the financing gap in recipient country budgets (Koeberle et al., 2005).

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