Aid and institutions: Local effects of World Bank aid on perceived institutional quality in Africa

Abstract

Motivated by the lack of sub-national empirical evidence on the relationship between aid and institutional development, this study explores the local effects of World Bank aid on perceived institutional quality in African aid receiving countries. We combine geo-referenced data on the subnational allocation of World Bank aid projects to Africa over the 1995–2014 period with geo-coded survey data for 73,640 respondents across 12 Sub-Saharan African countries. The empirical results, which are robust across a wide range of specifications as well as to using alternative identification strategies, suggest a positive impact of World Bank aid on citizens’ expressed willingness to abide by key formal institutions. This applies for overall World Bank aid, but as may be expected, the estimated effects are more pronounced when restricting our attention to projects focusing on institution building. Notably, the observed effects concern finalized projects, not projects still under implementation, highlighting that institutional change is a slow process.