Our dataset represents an unbalanced panel of annual observations from 1982-2008. We choose 1982 as the starting year in part because the ICRG measures, which comprise our _Institutional Capacity_ index, begin only in that year. It is also the year the Board adopted a comprehensive version of the current graduation policy.

The panel is unbalanced for several reasons. First, some countries were not IBRD members until well into the 1982-2008 period. This applies not only to new countries such as those emerging from the former Soviet Union and Yugoslavia, but also to many other countries including Switzerland. Second, because countries are not considered for IBRD graduation until they meet the income threshold, we restrict the sample to country-year observations in which the country’s income is above the threshold. Sixty-six member countries exceeded the threshold at some point during our sample period, but many did not do so in every year in the sample period. Third, several nations are missing data for certain variables in different years scattered throughout the sample time period. We are left with complete data for up to 906 total country-year observations, from 55 nations. Of these 55 countries, 21 are high-income countries that graduated from the Bank before the graduation policy was initially formulated in 1973 (or never borrowed at all). Arguably these countries were at very low risk of de-graduating throughout the 1982-2008 period, and their experience may have little relevance to those at higher risk. We therefore check the robustness of our results by dropping these 21 countries from the sample, leaving up to 437 observations in this second, smaller sample.

Descriptive statistics for all variables in both samples are presented in Table 2. The “graduate” variable shows that in 83 percent of the (country-year) observations in which the country exceeds the IBRD threshold, the country had graduated. However, that full sample (Sample 1) includes the high-income countries that never borrowed; without them (Sample 2), the ratio falls to 65%. Similarly, in Sample 1 borrowing commitments occur in 9.1% of the country-year observations, compared to 18.8% in Sample 2. Average scores on _Political Freedoms_ , _Institutional Capacity_ and _Credit Rating_ are lower, and banking crises more frequent, in Sample 2.

# **Empirical results**

# _Factors predicting graduation_

Table 3 presents probit estimates using a dummy variable coded 1 for years in which the country was an IBRD graduate, and 0 otherwise. The first column of results is for Sample 1, including high-income non-borrowers, while the second column reports results for Sample 2, which drops them. Standard errors (in Table 3 and in all subsequent tables) are adjusted for nonindependence within country “clusters” of observations.

Wealthier countries are significantly more likely to successfully graduate, as expected. Specifically, even among this sample limited to country-year observations that exceed the IBRD income threshold, graduation is more likely when income exceeds the threshold by a lot than by a little. The marginal effect of income at the mean values for either Sample 1 or Sample 2 suggests 9