World Bank-supported adjustment programs : country performance and effectiveness

Simple comparisons of growth rates in countries that have had at least two structural adjustment loans (SALs) or at least three adjustment loans show that their growth has improved more than that of other countries. But simple comparisons of the performance of groups of countries are poor estimators of the effectiveness of adjustment programs because the performance of an adjusting country is the result of: (a) the policies that would have been in place even without adjustment loans from the Bank; (b) world economic conditions; (c) the effects of the Bank-supported program; and (d) internal shocks to the economy. After explicitly controlling for external shocks and nonprogram determinants of performance, the authors find that adjustment lending programs have usually increased the growth rate of GDP and the ratio of exports to GDP, and have increased the saving-to-GDP ratio over early 1980s levels. But the average ratio of investment to GDP has fallen below 1970s levels. For countries that have reduced most of their policy inefficiencies, achieving a sustainable growth rate in the 1990s will require higher investment rates than those achieved in the 1980s.