WPS3690

# **Resistance to Multilateral Influence on Reform: The Political Backlash against Private Infrastructure Investments**

Witold J. Henisz and Bennet A. Zelner<sup>***</sup> The Wharton School University of Pennsylvania Philadelphia, PA 19104-6370 <u>henisz@wharton.upenn.edu</u> 215-898-0788 and McDonough School of Business Georgetown University Washington D.C. 20057-1147 <u>zelnerb@georgetown.edu</u> 202-687-6087

## **Abstract:**

Coercive isomorphism is a prominent source of institutional change. The literature to date has emphasized how actors that are powerful and legitimate (e.g., a national government) may coerce the adoption of reforms by dependent actors (e.g., state governments and other organizations whose activities are governed by the federal government). We observe that an actor’s power alone may be sufficient to promote reform, regardless of the actor’s legitimacy. However, such reforms are more susceptible to subsequent change than are those that emerge from processes not subject to the influence of external actors whose sway derives from their power alone. We develop and test our arguments in the context of the worldwide electricity provision industry by analyzing countries’ adoption of reforms in response to conditional lending practices by multilateral organizations such as the World Bank and the IMF. We find that reforms adopted in response to coercive pressures exerted by these organizations encounter much greater resistance, and that the incidence of financial and economic crises, the absence of checks and balances in established political institutions, and the inexperience of investor coalitions dramatically increase the predicted level of resistance.

## World Bank Policy Research Working Paper 3690, September 2005

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org._

* This paper was prepared as part of the research program on Industrial Organization Policy for Development at the Development Research Group of the World Bank, under the direction of Ioannis Kessides.

** Both authors contributed equally and list their names alphabetically on joint work. We thank The GE Fund; The Reginald H. Jones Center for Management Policy, Strategy, and Organization; The Mack Center for Technological Innovation; and the Tysoe Family Dean's Leadership Fund and Dean’s Faculty Research Support Fund of the McDonough School of Business for their generous financial support. We acknowledge the research assistance of Seth Abramowitz, Jack BeVier, Michael Brownfield, Danielle Demianczyk, Indranil Guha, Matthew Heron, Sophie Hoas, Russell Jame, Srividya Jandhyala, Eugene Kakaulin, Anna Kalenchits, Hee Young Kim, Eliezer Klebanov, Michele Konrad, Dan Matisoff, David Morales, Kyu Oh, Ayokunle Omojola, Daniella Polar, Brett Shaheen, Jack Sheu, Bartlomiej Szewczyk, Zhen Tao, Ozveri Teymur and Anna Yen.