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The World Bank Economic Review Advance Access originally published online on May 15, 2008
The World Bank Economic Review 2008 22(2):315-343; doi:10.1093/wber/lhn004
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© The Author 2008. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org

World Bank Lending and Financial Sector Development

Robert Cull and Laurie Effron

Robert Cull is a senior economist in the Development Economics Research Group at the World Bank
At the time of her retirement, Laurie Effron was a lead evaluation officer in the Independent Evaluation Group of the World Bank; her email address is leffron{at}gmail.com

Correspondence: his email address is rcull{at}worldbank.org

JEL codes: F33, G21, O16

A new database of World Bank loans to support financial sector development is used to investigate whether countries that received such loans experienced more rapid growth on standard indicators of financial development than countries that did not. Self-selection is accounted for with treatment-effects regressions. The results indicate that borrowing countries had significantly more rapid growth in M2/GDP than nonborrowers and swifter reductions in interest rate spreads and cash holdings (as a share of M2). Borrowers also had higher private credit growth rates than nonborrowers in some treatment-effects regressions but not in standard panel regressions with fixed country effects. On the whole, the results indicate some significant advantages in financial development for borrowers over nonborrowers.


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