ABSTRACT
The World Bank carries out extensive policy conditionality: developing country policy makers agree to a program of economic policy reform in exchange for grants and concessionary finance. There are two ways in which policy conditionality might have a beneficial impact. First, policy conditionality may have a short-term impact: during the lifetime of policy conditionality, the promise of resources induces policy makers to make beneficial policy changes. Second, policy conditionality may have a longterm impact: the short-term implementation of beneficial reforms may alter the political environment in a way that favors the continuation of those policies. In this chapter, we discuss the circumstances under which policy conditionality can have beneficial impacts in the short and long term.
