# **1. Introduction**<sup>**1**</sup>

The World Bank established overarching twin goals in 2013: ending poverty by 2030 and sharing prosperity. At the core of the Bank’s mandate, the first goal is focused on the reduction of global extreme poverty from 10.7 percent in 2013 to 3 percent by 2030, based on the international poverty line of $1.90 per person in 2011 purchasing power parity U.S. dollars. The second goal is a new one. Its basic metric is growth in the real incomes of the bottom 40 percent of the income distribution of the population (the bottom 40) in each country.<sup>2</sup> While the first is a global goal, the second is countryspecific. These twin goals are part of a wider international development agenda and are intimately related to United Nations Sustainable Development Goals 1 and 10, respectively, which have been adopted by the global community.<sup>3</sup> The adoption of the shared prosperity goal of the World Bank or the United Nations goal of reducing inequality should strengthen the focus of development interventions and cooperation in seeking income growth among the bottom 40 and narrowing the gap between this growth and the growth in the mean of the income distribution. The latter, which coincides with Sustainable Development Goal 10, is defined as the shared prosperity premium, and it provides insights into changes in inequality over time (Lakner, Negre, and Prydz 2014; World Bank 2016). Evaluating and monitoring these changes will thus be a key component of both World Bank operations and the implementation of the 2030 Agenda for Sustainable Development.<sup>4</sup> Even though the World Bank’s second goal is nominally new, the Bank has been pursuing broader distributional objectives through initiatives aiming at pro-poor growth, inclusive growth, and equity for a long time. Because of limitations in spatial distributional data, however, little is known about geographical allocation patterns among the institution’s projects within countries. The same holds for other bilateral and multilateral development actors. Nonetheless, because of the increased availability of disaggregated spatial data, measuring and analyzing the subnational distribution of project funding and its relationship to the bottom 40 are now easier. Reaching such an understanding of funding can dramatically improve efficiency and help maximize the poverty-reducing effects of development programs (Elbers et al. 2007; Karlan and Thuysbaert 2016).

This paper aims to contribute to an incipient literature examining the subnational allocation of development intervention funding. In particular, it investigates whether investment projects of the World Bank’s two lending arms, the International Bank for Reconstruction and Development for middle-income countries and the International Development Association for low-income countries, flow to administrative areas where the bottom 40 are located.<sup>5</sup> The paper accomplishes this by (1)

> 1 The authors wish to express gratitude for helpful discussions and comments from Steve Knack, Minh Cong Nguyen, Jose Montes, Stephan Klingebiel, Auguste Kouame, Pablo Fajnzylber, Joao Pedro Azevedo, and also for research assistance from Mira Franzen and Claudia Witkowski. We are also grateful to Massimo Mastruzzi and the World Bank’s BOOST team, Dimitry Zaviralov, and the World Bank’s Geospatial Support Team (GOST) for their advice and support.

> 2 Income here generally refers to income or consumption aggregates obtained through surveys.

> 3 See “Sustainable Development Knowledge Platform: Sustainable Development Goals,” Division for Sustainable Development, Department of Economic and Social Affairs, United Nations, New York, https://sustainabledevelopment.un.org/?menu=1300.

> 4 See “Transforming Our World: The 2030 Agenda for Sustainable Development,“ Department of Economic and Social Affairs, United Nations, New York,

https://sustainabledevelopment.un.org/post2015/transformingourworld.

5 Investment projects are the dominant type of assistance across development institutions, including the World Bank. The other two types are budget support loans (or development policy lending in the current parlance of the Bank), which constitute, on average, about 25 percent of the World Bank’s yearly lending portfolio, and Program-for-Results financing, which has been negligible until recent years. The analysis in this paper is focused 2