Abstract
This compilation of summaries of Working Papers released during January-June 1993 is being issued as a part of the Working Paper series. It is designed to provide the reader with an overview of the research work performed by the staff during the period. Authors of Working Papers are normally staff members of the Fund or consultants, although on occasion outside authors may collaborate with a staff member in writing a paper. The views expressed in the Working Papers or their summaries are, however, those of the authors and should not necessarily be interpreted as representing the views of the Fund. Copies of individual Working Papers and information on subscriptions to the annual series of Working Papers may be obtained from IMF Publication Services, International Monetary Fund, 700 19th Street, Washington, D.C. 20431. Telephone: (202) 623-7430 Telefax: (202) 623-7201
Multilateral development banks (MDBs), such as the World Bank and the various regional development banks, have been in existence for a number of decades now. Despite their obvious significance for both world capital markets and developing country borrowers, the provocative question whether MDBs are needed after all has usually been answered on either moral or political grounds, often with little economic foundation. This paper addresses the apparent lack of economic theory in the analysis of multilateral development banking by offering a simple comparative statics framework, adapted from the credit union literature, through which MDB lending behavior can be studied.
In the model, MDB members fall into two groups: “net contributors” (the industrial countries) and “net borrowers” (the developing countries). The benefits derived by each group are nonhomogeneous. Within each group, member countries try to channel the MDB’s financial resources into those uses that yield the highest expected benefit. The level of benefits member countries can expect to derive depends critically on a number of exogenous market parameters, institutional variables, and the preferences of other member countries. Although the MDB management has to trade off the interests of the two groups, once it has established its preferences, the preferred group of member countries usually has to absorb positive as well as negative exogenous shocks.
The model may be used to predict potential areas of conflict, agreement, and indifference between MDB member countries, analyze lending policy proposals against the background of distributional conflicts, and show how various institutional reforms may improve allocative efficiency and overall member benefits.