8 main indicators of readiness for IDA graduation. As noted previously, the approach to graduation has become more circumspect and rounded, to limit the risk of future reverse graduations. This encourages the inclusion of development indicators.

Poverty headcount is potentially an important determinant of graduation, as poverty reduction is a major objective of IDA lending. The data are taken from the World Bank’s PovcalNet database. Coverage is not universal and as such this reduces the sample size, with some IDA-eligible countries having no data at all, while missing country-year observations are accounted for through linear interpolation,<sup>5</sup> but only for at most two consecutive missing years.

We proxy for political and institutional development using the International Country Risk Guide (ICRG) Quality of Government Index produced by the PRS Group. This index combines scores for ‘corruption’, ‘law and order’, and ‘bureaucracy quality’ to give a value from 0 to 1, where higher values indicate higher quality of government.<sup>6</sup> To capture the role of vulnerability to shocks, country size (measured by log of population) is included as, other things being equal, larger countries are likely to have more diversified economies less vulnerable to weather-related disasters or adverse commodity-specific or sector-specific shocks. Larger countries may also benefit from economies of scale in administrative capacity and other aspects of institutional development (regulatory systems, courts, independent audit, other accountability institutions, and so on). In addition, there is a cap on allocations to large blend countries that was established to limit the share of IDA resources allocated to populations with large countries and existing access to IBRD. Historically this has covered China, India, Indonesia, and Pakistan, with only the latter still being IDA eligible. The cap meant that Pakistan’s IDA18 allocation was capped at 7 percent of IDA’s total country-allocable envelope. For some of the countries subject to the cap, the IDA financing as a share of gross domestic product (GDP) can become very low,<sup>7</sup> and as a result, they may graduate from IDA sooner than they would have otherwise.

A second measure of vulnerability is the degree of dependence on resource revenues. As such, we include natural resource rents as a share of GDP. Because prices of oil, metals, and other commodities are

> 5 The PovcalNet methodology is described as “interpolating and extrapolating for economies in which survey data are not available in the reference year but are available either before, after, or both. The reference years range from 1981 to 2015. The more survey data are available (that is, the more data for different years), the more accurate the interpolation.” http://iresearch.worldbank.org/PovcalNet/methodology.aspx

> 6 For countries in which ICRG data were not available, we used the Worldwide Governance Indicators to estimate the ICRG value to maintain a larger sample size. This was done through a linear regression of ICRG rating on these indicators, with the predicted ICRG strongly correlated with actual ICRG.

> 7 For India, average IDA commitments were just 0.1 percent of GDP in the years of their last replenishment before graduation.