however. Nor is it robust to the inclusion of the CPIA variables, in equation 3, where the coefficient for _Strategy_ is negative but not significant.<sup>26</sup> Although quality of national development strategies is one of the Paris Declaration monitoring indicators, the indicator has been criticized for its close identification with certain donors. The World Bank and IMF have encouraged or required formulation of strategies for recipients of concessional loans and debt relief, and the quality of the strategies is assessed by World Bank staff. If strategies are often Bank-driven, their Bank-assessed quality may have little influence on decisions of some other donors advocating different approaches to development. When the specification in Table 6, equation 2 is tested separately for the 39 World Bank observations and for all others, _Strategy_ is estimated to increase use of PFM systems by 21 percentage points for the Bank sample, but by only 8 percentage points for non-Bank observations.<sup>27</sup> The inclusion of _Strategy_ reduces the sample size by about one fifth, as the quality of development strategies was not assessed for middle-income countries. For this low-income sample, the coefficient for _PFM Quality_ in equation 3 is nearly double its magnitude in equation 1. Because _Strategy_ is not a robust predictor of trust in country systems, and its inclusion cuts the sample size substantially, we omit it from subsequent tests.

If using country systems strengthens them while bypassing them weakens them (OECD, 2008a), then _PFM Quality_ and _Transparency_ may be subject to endogeneity bias. We address this issue in Table 6, equation 4 by using lagged (2004, instead of 2006) values of _PFM Quality_ and _Transparency_ . Coefficients do not change much from their equation 1 magnitudes and _PFM Quality_ retains its significance, but _Transparency_ is no longer significant at the .10 level.28 Results for _PFM Quality_ and _Transparency_ are potentially weaker for donors other than the World Bank. The CPIA assessments are done by Bank staff, so they are particularly likely to affect decisions by the Bank on aid implementation. Equation 5 (Table 6) replicates the base specification of equation 1, but dropping the 49 World Bank observations. Results for the CPIA variables (and for the other regressors) are unaffected by dropping World Bank observations.

Equation 6 drops a different set of observations, those for middle-income aid recipients. The World Bank publicly releases the CPIA ratings only for low-income (“IDA eligible”) countries. Equations 1-5 include non-public CPIA ratings for 15 middle-income countries representing about 18% of the observations in equation 1. Results based only on publicly-

> 26 _Strategy_ is correlated with _PFM Quality_ and _Transparency_ at .77 and .53 respectively.

> 27 In a full set of donor-by-donor tests, _Strategy_ is significantly associated with greater reliance on country PFM systems only for France, Japan, Norway and the United Kingdom.

> 28 Data on CPIA are available for 41 fewer observations in equation 4 than in equation 1, but the sample change is not responsible for the weaker result on _Transparency_ .  The 2006 _Transparency_ value, tested for the smaller 2004 sample, produces a coefficient of 8.2 with a t-statistic of 2.16.

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