Following Smets and Knack (2015), we count for each country the number of “social policy” prior actions in policy loans and use it as our main variable of interest.<sup>7</sup> This variable can be decomposed into prior actions related to gender equality, equity of public resource use, building human resources, social protection and environmental sustainability. Gender reforms cover a wide range of areas going from the protection of women in the household to the inclusion of gender-based data in national statistics. Equity of public resource use relates to the extent in which countries are able to identify the poor and vulnerable and prioritize budgeting accordingly. Prior actions in this area relate to poverty measurement and pro-poor budgeting. Building human resources focuses on health and education reforms; conditions cover many topics including civil servant payroll reform, health financing, food safety standards, etc. Social protection conditions focus on improving the labor market and creating social safety nets and other transfer programs such as pension reforms. Finally, environmental sustainability conditions relate to the protection and sustainable use of natural resources, reforms to combat pollution and measures to mitigate the adverse impacts of climate change.

# 2.2 Model specification

Econometrically, we estimate the following equation:

# ∆�� = �� + ��∆�� + ���� + ��                                                          (�)

With ∆y� the change in the CPIA C score for country i during the period 2006-2014 and ∆x� the change in the number of “social policy” prior actions for country i between 2006 and 2014. Z� is a vector of control variables including the initial level of policy quality (i.e., the 2006 CPIA score), average annual aid as a share of GDP, average annual growth in GDP per capita and the change in political freedom over the period 2006-2014. Given that social policy prior actions in DPLs can be classified along the same lines as CPIA subcomponents, we also estimate equation (1) for each CPIA C _sub-component_ , using changes in corresponding prior actions as variables of interest.<sup>8</sup> A convenient implication of using the change in policy quality as the dependent variable is that time-invariant heterogeneity between countries – for example, colonial heritage, legal tradition, and cultural norms – should matter relatively little, as most of its effects will arguably be captured by the initial level of policy quality. Another convenience of using changes over a long period for key variables is recognition of the fact that policy 7 These prior actions are thematically coded in the World Bank’s database of prior actions and can be extracted for all major themes. We have used thematic codes 51-60, 62-70, 80-89, 92, 93 and 100. Arguably, some loan conditions may have a larger impact on policy quality than others (IEG, 2015). Disaggregating conditions by type is beyond the scope of this study, but is an interesting area for future research.

8 While for most sub-components a good conceptual match was found with corresponding prior actions, the CPIA sub-component on equity of public resource use is only partly captured by prior actions. That is, that CPIA sub-component includes poverty measurement, poverty budgeting and the progressiveness of taxation, while the corresponding prior actions only focus on the former two.

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