# **7.1 Country Context Correlates of PSM Project Performance**

# **_Political and Civil Liberties_**

This paper finds that World Bank PSM reform projects are, on average, less likely to perform “satisfactorily” in countries where citizens have strongly limited political rights and civil liberties. Ordered probit regression estimates employing the Freedom House country classification suggest that PSM projects in nonfree countries are about 10 percentage points less likely to be rated either “satisfactory” or “highly satisfactory” than projects in “free” countries (see annex table A.8). Similarly, ordered probit regression estimates employing the Polity IV classification suggest that PSM projects in “autocracies” are about 13 percentage points less likely to be rated either “satisfactory” or “highly satisfactory” than projects in “anocracies” (see annex table A.9).<sup>62</sup> Somewhat surprisingly, the estimates using Polity IV measures also suggest that projects in democracies perform satisfactorily less often than project in anocracies. These performance differences are statistically significant at the 10 or 5 percent significance level in a number of specifications, but are not robust to all specifications.

These findings are consistent with the argument that political systems that favor “taking” over “making” are also less likely to invest in building state capacity. Bank PSM projects aimed at building this capacity are thus less likely to deliver the expected results in such contexts. The finding is inconsistent with the argument that a “developmental state” logic where authoritarian rule can facilitate tough PSM reforms and thus successful Bank PSM projects applies in the average country. But this finding about the average does not rule out the possibility that countries’ developmental paths vary—as Levy and Fukuyama (2010) suggest—and that some might well follow a “developmental state” logic.

Estimates consistently suggest that PSM projects also have a distinctly lower success rate than non-PSM projects in nonfree countries with limited political and civil liberties. By contrast, there are no such differences in “partially free” and “free” countries. As shown in annex figure A.2, in “nonfree” countries − the marginal probability of receiving “satisfactory” ratings for PSM projects is about 7 8 percentage points lower than for non-PSM projects. The probabilities for receiving below MS+ ratings are significantly higher (based on ordered probit regression estimates). This finding is confirmed in an equivalent estimation that uses the Polity scores instead of the Freedom House status (see annex figure A.3).

Matching estimates yield consistent results. As reported in annex table A.12, nearest neighbor matching estimates suggest that the share of PSM projects (broadly defined) that are rated MS+ in nonfree contexts is about 8.4 percentage points lower than for matched non-PSM projects in the same countries, at the 5

> 62 Following the Polity IV terminology, “anocracies” are polities in the middle of the “democratic” continuum between “autocracies” and “democracies.” On the Polity scale from -10 (full autocracy) to +10 (full democracy), anocracies are defined by scores ranging from -5 to + 5.

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