2008).<sup>3</sup> For instance, Rodrik (1990) argues that a focus on liberalization is misguided if macroeconomic stability would thereby be endangered. A third reason mentioned in the literature is limited sustainability and backsliding of reforms after implementation (World Bank, 1989; Rodrik, 1992; Collier et al., 1997). For example, World Bank (1989) indicates that many highly indebted African countries failed to maintain fiscal discipline after initial reductions in budget deficits.

Recognizing the limitations of traditional policy-based support, the World Bank modified its approach towards adjustment lending (and development assistance) around the turn of the millennium.<sup>4</sup> Among other changes, it reduced the average number of conditions in its loans, strengthened country “ownership” of lending programs by using countries’ own development strategies to identify loan conditions, and moved from ex-ante towards ex-post disbursement of loan tranches (Koeberle, 2003; World Bank, 2004, 2006).<sup>5</sup> Surprisingly, and in contrast to the extensive research evaluating the first two decades of adjustment lending, there is not much systematic research investigating more recent episodes of policy based lending. We found only a few internal reviews.<sup>6</sup> The World Bank’s 2003 Annual Review of Development Effectiveness was dedicated to analyzing the effectiveness of Bank support for policy reform. Focusing on the period 1999-2003, the study concluded that “Bank lending was concentrated in countries that were improving their policies” and that “in many cases” DPLs and other Bank support “contributed to policy improvements” (World Bank, 2004). Also, beginning in 2006 the World Bank provides a three-yearly retrospective of its experience with the implementation of DPLs. Overall, DPLs are evaluated favorably. For instance, comparing results to objectives, the 2009 DPL retrospective argues that DPLs have consistently achieved development outcomes during the period 2006-2009 (World Bank, 2009). Finally, a review of Bank support in fragile and conflict-affected states reports a positive and statistically significant correlation between policy improvements and the number of years under DPL support (IEG, 2013).

However, a quantitative study with a robust identification strategy is still lacking. We aim to fill this gap by investigating the association of repeated policy lending with the

> 3See Smets et al. (2013) for a recent quantitative analysis concerning the importance of design quality on reform success.

> 4Joseph Stiglitz’s address at UNCTAD in 1998 – when he was the Bank’s Chief Economist – nicely illustrates the shift in momentum. Consider, for example, the following quote: ‘The key ingredients in a successful development strategy are ownership and participation. We have seen again and again that ownership is essential for successful transformation: policies that are imposed from outside may be grudgingly accepted on a superficial basis, but will rarely be implemented as intended [ . . . ]. Furthermore, a country’s own development strategy provides, then, the overall framework for thinking about a country’s plan for change’ (Stiglitz, 1998).

> 5This policy shift was formalized in 2004 in a new operational policy, OP 8.60, including the name change from structural adjustment lending to development policy lending. Furthermore, in 2005 the Bank’s Development Committee endorsed five good practice principles of policy based lending: country ownership, harmonization with other donors, customization of lending design, criticality of loan conditions, and transparency and predictability of performance. All new development policy operations should adhere to these best practice principles.

> 6Jones et al. (2011) – examining the Bank’s support in bringing down tariffs in Eastern Africa – lies somewhere in between as they investigate the period 1992-2002.

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