世界银行 - 大规模学习基础设施、援助实效和世界银行绩效 Learning at Scale Infrastructure,Aid Effectiveness,and World Bank Performance

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LearningatScale

Infrastructure,AidEffectiveness,andWorldBankPerformance

SomikLall

XinyiSu

MariaVagliasindi

WORLDBANKGROUP

DevelopmentEconomicsStrategyGroup

June2026

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Abstract

Thispaperreexaminesaideffectivenessusingex-posteco-nomicratesofreturnfrom2,500WorldBank–financedinfrastructureprojectsoversixdecades.Threefactsemerge.First,averagevaluecreationishigh:themeaneconomicrateofreturnis24percent(median18.5percent).Second,returnsriseovertime:afterrelativestabilitythroughthemid-1980s,economicratesofreturnincreasedfromthelate1980sonward,consistentwithimprovedselection,design,anddelivery.Third,economicratesofreturnaresystematicallyhigherincountrieswithweakinstitutions.

Insuchcountries,high-qualityWorldBankperformanceisassociatedwithabouta12-pointincreaseintheaverageeconomicrateofreturn.Aplausiblemechanismistalentdeployment.Higher-qualitytaskteamleadersaredispro-portionatelyassignedtothemostchallengingcontextsandlinkedtofastertime-to-effectivenessandhighereconomicratesofreturn,despitelonger,moreintensiveimplementa-tion.Overall,alongsidecountryfundamentals,WorldBankperformanceandtalentdeploymentmateriallyraisereturnstoscarcecapital—especiallywheregovernanceisweak.

ThispaperisaproductoftheStrategyGroup,DevelopmentEconomics.ItispartofalargereffortbytheWorldBanktoprovideopenaccesstoitsresearchandmakeacontributiontodevelopmentpolicydiscussionsaroundtheworld.PolicyResearchWorkingPapersarealsopostedontheWebat

/prwp.Theauthorsmaybecontacted

atslall1@

,

xs308@cam.ac.uk

,

andmvagliasindi@.Averifiedreproducibilitypackageforthis

paperisavailableat

,click

here

fordirectaccess.

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ThePolicyResearchWorkingPaperSeriesdisseminatesthefindingsofworkinprogresstoencouragetheexchangeofideasaboutdevelopmentissues.Anobjectiveoftheseriesistogetthefindingsoutquickly,evenifthepresentationsarelessthanfullypolished.Thepaperscarrythenamesoftheauthorsandshouldbecitedaccordingly.Thefindings,interpretations,andconclusionsexpressedinthispaperareentirelythoseoftheauthors.TheydonotnecessarilyrepresenttheviewsoftheInternationalBankforReconstructionandDevelopment/WorldBankanditsaffiliatedorganizations,orthoseoftheExecutiveDirectorsoftheWorldBankorthegovernmentstheyrepresent.

LearningatScale

Infrastructure,AidEffectiveness,andWorldBankPerformance*

SomikLall,XinyiSuandMariaVagliasindi

AuthorizedfordistributionbyIndermitGill,ChiefEconomist&SeniorVicePresident,DevelopmentEconomics,WorldBankGroup

JELClassification:D02D61F35H43L5O22

Keywords:Economicratesofreturn,Infrastructure,aideffectiveness,FCV,low-incomecountries,WorldBank,MDBs.

*TheauthorsarerespectivelyDirectorofStrategyforDevelopmentEconomics,WorldBankGroup(

slall1@

);doctoralstudentatCambridgeUniversity(

xs308@cam.ac.uk

).andLeadEconomistintheInfrastructureChiefEconomistoffice,WorldBankGroup(

mvagliasindi@

).ThispaperisaproductofabroaderWBG-HooverProject“LearningfromLending”,complementingrecentanalysisoftheIFCportfolio,Charietal.,2025.ThispaperhasbenefitedfromdiscussionswithIndermitGill,PeterHenry,DanRogger,AriannaLegovini,BobRijekers,KarlisSmits,andStutiKhemaniandparticipantsoftheTokyoLeadAdaptScale(LEADS)InnovationinInfrastructureImpactworkshop.SpecialthankstoJedFriedmanforgenerouslysharingdata(Ashtonetal.,2023)andtoDonghuaJiaowhohasprovidedexcellentresearchassistanceatearlystagesoftheproject.

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1.Introduction

ThispaperreassessesaideffectivenessusingsixdecadesofWorldBankinfrastructurelendingthroughroughly2,500projectsacrossnearly160developingcountries,evaluatedthroughtheirexposteconomicratesofreturn(ERRs).Movingbeyondaggregate,country-levelmetricsandqualitativeassessments,weexaminehowWorldBankorganizationalperformanceshapesprojectoutcomes,particularlyindifficultpolicyenvironments.

Thecentralthemeisstaffallocation.High-qualityTaskTeamLeaders(TTLs)andmanagers—especiallythoseexperiencedinlow-capacitysettings—areassociatedwithhigherERRsandbetteroutcomesinweaker-governancecountries.Overtime,theWorldBankhasimprovedportfolioperformanceinpartbydeployingitsstrongeststafftothemostchallengingcontexts,thoughcareermanagementforTTLshasnotkeptpace.CapableTTLsalsocompressthetimefromapprovaltofirstdisbursement,animportantmarginofperformancewhereimplementationcapacityislimited.

OurworkbuildsonDenizeretal.(2013)andBulmanetal.(2017),whofindthatcountrycharacteristicsexplainonly10–25percentofprojectperformancevariation.Fastergrowthandstrongerpoliciescorrelatewithbetteroutcomesatthecountrylevel,whileshorterprojectdurationandTTLtrackrecordmatterattheprojectlevel.Thus,whilecountryselectivity“pays”,mostactionableleverageisattheprojectlevel.

Wecontributealongthreedimensions.

First,weexpandthedatasetintime(evaluationsthroughJune2025,versus2011)andscope(TTLCVsanddisbursementhistories),focusingonthemorehomogeneoussampleofinfrastructureprojects.

Second,wecentertheanalysisonERRsratherthanthequalitativeratingsoftheWorldBank'sIndependentEvaluationGroup(IEG),mitigatingconcernsaboutmeasurementartifactsandcollinearitybetweenIEGoutcomeratings,WorldBankperformancescores,andrelatedindicators(Appendix1reviewstheliterature).

Third,theERRlensyieldsnewfindings:satisfactoryWorldBankperformanceisassociatedwithmateriallyhigherreturnsincountrieswithweakgovernance(lowCPIA);targetingaidtosuchsettingscanpayoffpreciselybecausetheWorldBankdeploysitsmostcapableTTLs—bothnewlyhiredandprovenperformers—tothesecontexts.Yetincentivesystemsremainimperfect:manyhigh-performingTTLspersevereindifficultassignmentslargelythroughintrinsicmotivationratherthanstructuredcareerrewards.

ThisstudyisalsothefirsttoapplyaninstrumentalvariablestrategytoisolatethecausaleffectofERRsonIEGimplementationratings,producingestimatesfreeoftheconfoundingbiasthatafflictspriorwork.Byidentifyingthefactorsthatmostreliablyshapeeconomicandsocialprojectreturns,theanalysisequipsdecision-makerstoprioritizeinvestmentsandallocateresourcesefficientlyacrossvariedgovernancesettings.

Ourfindingsspeakdirectlytothebroaderaid-allocationdebate.Becauseweakgovernancetendstocoincidewithlowincomes,aninfluentialstrandoftheliteraturearguedthataidisleasteffectivewhereitismostneeded(Collier,2007;KanburandSumner,2012).Allocationrules—suchasCollierandDollar(2002)andtheInternationalDevelopmentAssociation’s(IDA)Performance-BasedAllocation—embedthistrade-offbyweightingincome,governance,andpopulation,promptingexceptionstoavoidexcludingfragilestates.

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Concernsaboutmisuseandleakagepersist(AlesinaandWeder,2002;Andersenetal.,2022;seealsoOlken,2006;Easterly,2007;BourguignonandPlatteauetal.,2014).

Recentstudiesindicatethat,inasampleofthe22mostaid-dependentcountries(asmeasuredbyWorldBankaid),disbursementsofaidhavecoincided,withinthesamequarter,withnotableincreasesinbankdepositsinoffshorefinancialcenters(Andersenetal.,2022).Thiscorrelationmaysuggestthatsomeaidflowsaredirectedtoforeignprivatebankaccounts,potentiallyinvolvinglocalelites(Olken,2006;Easterly,2007;BourguignonandPlatteauetal.,2014providefurtherdiscussiononthistopic).

Ouralternativeperspective,alignedwithLimodio’s(2021)negativeassortativematchinghypothesis,examineshowTTLsareassignedacrosstasksandcountries.Ifoversightneedsriseasgovernancequalityfalls,thenWorldBanksupervisionintensityandstaffcapabilityshouldincrease,asacompensatingmechanism.WedocumentthatWorldBankperformancehaslargereffectsonERRsinweak-governancesettingsandtestfornegativeassortativematchingbycorrelatingTTLandcountryfixedeffects,findingthathigh-performingprojectmanagersaredisproportionatelydeployedtohigher-riskcountries—bothamongincumbentsandnewhires.

Theempiricalfindingshaveimportantpolicyimplications.

First,allocatingscarcecapital.ERRsarehigheronaverageincountrieswithweakerinstitutions,suggestinginfrastructureinvestmentsdeliverthegreatesteconomicvaluewhereneedsarehighest.Bycontrast,overallprojectoutcomestendtobebetterincountrieswithstrongergovernance,highlightingadistinctionbetweeneconomicreturnsandbroaderimplementationsuccess.StrongWorldBankorganizationalperformancemateriallyincreasesboththelikelihoodandmagnitudeofsuccessinthesecontexts.

Second,operatingmodelandstaffing.Thereissignificantdevelopmentvalueinassigningtoptalenttothemostchallengingoperationsandcontexts.Strengtheningincentivesandcareerpathwaystosustainhigh-performingTTLsinFCVandlow-CPIAenvironmentscanimproveportfolio-widereturns.

Third,managingadualobjective.WhileERRsarehighestwheregovernanceisweakest,overalloutcomes(IEG)benefitfromstrongerinstitutions.Thissuggestsadualoperationalfocus:maximizeeconomicvaluethroughdisciplinedprojectdesignandsupervisioninhigh-needcontexts,whileengagingoninstitutionalstrengtheningtoimproveimplementationquality.

Therestofthepaperisorganizedasfollows.Section2providesabriefhistoryofWorldBankinfrastructurelending.Section3describesthedata.Section4presentsthemodelandidentificationstrategy.Section5teststheimportanceofTTLsandtheirmatchingwithchallengingenvironments.Section6concludeswithpolicyimplications.

2.TheWorldBank'sInfrastructureLending

Fromitspostwarorigins,theWorldBank’sinfrastructureengagementhasevolvedfromurgentreconstructiontolong-termdevelopmentfinancespanningtransport,energy,water,anddigitalsectors.

Thistrajectoryreflectsthreedefiningforces:shiftingglobaleconomicconditions,theavailabilityofconcessionalfinancingforthepoorestcountries(IDA),andincreasinglyrigorousresultsandevaluation

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architecturethroughIEG.Together,theymarkatransitionfromrebuildingphysicalassetstostrengtheninginstitutionsandmeasuringdevelopmenteffectivenesswithgreaterprecision.

2.1OverviewofWorldBanklending

TheBrettonWoodsAgreement(July1944)createdtheInternationalBankforReconstructionandDevelopment(IBRD,nowpartoftheWorldBankGroup)alongsidetheIMFtopromotepostwarstabilityandeconomicreconstruction.TheIBRDbeganoperationsonJune25,1946,initiallyfocusingonfinancingEurope’srecoverybeforebroadeningtodevelopmentinless-developedcountries.

Between1946and1948,theBankextendedmorethanUS$500millioninreconstructionloanstoWesternEurope—US$250milliontoFrance,US$207milliontotheNetherlands,US$40milliontoDenmark,andUS$12milliontoLuxembourg.France’sfirstrequest—US$500million—arrivedasaletterappendedtotheMonnetPlan;theBankapprovedhalfthatamount,signingtheloanonMay9,1947.Toon-lend,theBankfirstraisedfundsinprivatecapitalmarketsviabonds,atatimewhen87percentofEuropeanbondswereindefault(early1946),promptingprivatelenderstoseekstrongguaranteesforapublicborrower.

MuchearlylendingoccurredundertheArticles’“specialcircumstances”provisionsratherthanfordiscrete,economicallyappraisableprojects.Bythe1950s,itbecameclearthatmanylow-incomecountriesrequiredconcessional

terms.WithU.S.support

,theInternationalDevelopmentAssociation(IDA)wasestablishedonSeptember24,1960,toprovidegrantsorhighlysubsidizedcreditstothepoorestcountries,complementingtheIBRD’smarket-basedlending(primarilytomiddle-incomeandcreditworthylow-incomecountries).Withinitsfirsteightmonths,IDAhad51membersandapprovedUS$101millionincreditstoSudan,Chile,India,andHonduras.In1961,HondurasreceivedthefirstIDAcredit—US$9millionforhighways,includinga62-mileextensionoftheWesternHighway.UnliketheIBRD,whichchargespositiveinterestandcanretainincometosupportfutureoperations,IDAreliesonperiodicdonorcontributionsanddoesnotseektogenerateprofits.

2.2OverviewoftheWorldBank’sevaluationofdevelopmenteffectiveness

TheWorldBank’sIndependentEvaluationGroup(IEG)servesastheinstitution’sevaluation“watchdog.”Critically,itreportsdirectlytotheBoardofExecutiveDirectors(representingdonorsandrecipients),nottoManagement.IEGperiodicallyreviewsasampleofoperationsandproducesannualreports,providingchecksandbalancesfortheBank’sinternalself-evaluationsystems.

EvaluationattheBankhasdeeproots.Inthelate1960s,selectprojectsunderwentformalandadhocreviews.In1970,anOperationsEvaluationUnitwascreated;itbecameindependentin1973astheOperationsEvaluationDepartment(OED)reportingtotheBoard.Overtime,theevaluationfunctionsoftheWorldBank,IFC,andMIGAwereconsolidatedintoIEGin2006.

In1973,toreinforceOED’smandate,alloperatingdepartmentswererequiredtoprepareProjectCompletionReports(PCRs)asthefinalstepintheprojectcycle.PCRsassessedtheextenttowhichobjectivesweremet;economicandsocialimpacts;institutionaldevelopment;implementationcompleteness;compliancewithcovenants;andtheBank’srole.OEDthenauditedcompletedprojectsand

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couldreviseoraddtoPCRfindings.Whiletheinitialintentwastoauditallcompletedprojects,thesharereceivingfullauditsdeclinedovertimeassystemsmatured.OnSeptember26,1975,OEDissuedthefirstAnnualReviewofProjectPerformanceAuditResults,covering50auditedprojects.

2.3Infrastructureportfolio

Sinceinceptionthrough2024,theWorldBank’sinfrastructureportfoliocomprisesnearly6,300projects:

•Transport:ThefirsttransportprojectinthedatabaseisaUS$3.2millionloanapprovedonMay22,1956,toimprovethePortofCorinto,Nicaragua’smainseaporthandlingthree-quartersofthecountry’strade.Financingcoveredanewquay,transitsheds,andmoderncargo-handlingequipmenttoreduceseveredelays—estimatedatroughly470daysforfreightersand20daysfortankers—causedbycongestionandinefficienthandling.

•Energy:ThefirstenergyoperationrecordedisaUS$2.4millionloantoPakistan(approvedAugust13,1959)toexpandelectricitysupplyinKarachi,followingtwoearlierloans(1957and1958)forasteampowerplant.

•Water:OnMay29,1968,theBanksupportedBogotá,Colombia,withforeignexchangefinancingofUS$42milliontoexpandwaterandpowersupply.Since1963,thecityhadfacedawatershortfallof15–20percent,risingfurtherduringdryseasons.

•Digital/telecommunications:TheBank’sfirstdigital-sectoroperationwasapprovedonSeptember10,1968,forMalaysia,financingtheforeignexchangecomponentforexpandingsubscribersoutsideplant,telegraphandtelexfacilities,andelementsoflong-distanceandinternationalnetworks.

3.DataDescription

Wedescribethecorestructureofourdatabaseandthemethodologyusedtocompileinformationonprojects,countries,andTaskTeamLeaderattributes.

3.1Projectdatabase

OurdatabasespansmorethansixdecadesandcoversallcompletedWorldBankinfrastructureprojectsthatreceivedanIEGrating.Itis,toourknowledge,themostcomprehensivecompilationofinfrastructureprojectperformancedata,capturingoperationsapprovedbetween1956and2020andcompletedbetween1963and2025.Table1summarizesvariablesextractedfrominternalprojectsystems.Onaverage,aninfrastructureprojectinoursamplelasts2,621days(about7.2years),hasacommitmentsizeofUS$90million,andcarriesanaverageinterestrateof3.3percent.

Tofacilitatecomparisonwithrecenteconomicdatasets,theaverageapprovalyearinourdatabaseis1992;the5thand95thpercentilesare1970and2015,respectively.Bycomparison,Limodio(2021)reportsanaverageapprovalyearof1994,withthe5thpercentileat1981andcoverageextendingthrough2005andbeyond;Ashtonetal.(2023)includeprojectsapprovedbetween1995and2009.

Table1:ProjectDatabase

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Variable

N

Mean

SD

p50

p5

p95

Economicratesofreturn(ERR)

ERRatcompletion

2455

24.0

27.6

18.5

3.8

59.0

ERRatappraisal

IEGratings

2385

25.3

23.4

20

9.6

54

Outcomes

2392

4.4

1.1

5

2

5

Bankperformance

Projectmilestones

1287

4.4

1.0

5

2

5

Approvalyear

2455

1991.2

14.8

1990

1970

2015

Effectiveyear

2451

1991.7

14.8

1990

1970

2015

Closureyear

2451

1998.2

15.4

1997

1975

2023

ProjectLength

Projectduration(days)

Size

2451

2620.8

760.4

2566

1507

3880

Actualdisbursement(US$million)

Interestrates

2450

89.5

125

50

6

297

Interestavg(%)

Disbursements

2435

3.2

3.3

0.8

0.005

8.5

Daystoeffectiveness

2451

208.2

141.5

170

59

465

Daysto1stdisb

1146

219.4

482.8

63.5

3

1332

Daysto50%disb

545

1558

574

1575

656

2565

Daystolastdisb

2447

2412.8

746.6

2348

1352

3671

Notes:Thistablereportsthesummarystatistics.Foreachpanel,thetablereportsthenumberofobservations(indicatedasN),themean,standarddeviation(indicatedasSD),themedian,andthe5thand95thpercentiles(5thP.tileand95thP.tilerespectively).

Source:WBprojectERRdatabase,developedbytheauthors.

Economicratesofreturn

Ouranalysisfocusesoneconomicratesofreturn,ratherthantheIEGratingsofprojectoutcomes.Economicrateofreturnrepresentsaquantitativeandcomparablemetricderivedfromcost-benefitanalysisandiswidelyrecognizedasthemostsuitableindicatorforassessingthevaluethataprojectgeneratesforsocietyatlarge.TheIEGOutcomeRatings,ontheotherhand,arequalitativemeasures,foundedonabroadassessmentregardingwhetheraprojecthasaccomplisheditsobjectives,factoringindimensionssuchasrelevanceandefficacyandefficiency.

Theeconomicrateofreturncapturesnuancedvariationsineconomicefficiencyacrossprojects,reflectingtherateatwhichdiscountedbenefitsequaldiscountedcosts,therebyprovidingapreciseandscalablemeasureofaproject’scontributiontosocietalwelfare.Ontheotherhand,theIEGOutcomeRatingisinherentlydiscrete,reflectingcategoricalassessments.Thisfundamentaldifferenceunderscoresthat,althoughbothindicatorsserveimportantrolesinprojectevaluation,theeconomicrateofreturnoffersamoregranularandobjectivequantificationofvaluecreation.Whiletheeconomicrateofreturnatcompletionisutilizedasoneoftheindicatorstoassessthe“efficiency”aspectoftheIEGoutcomerating,itsinfluenceonalteringtheoverallratingisminimal,sinceinmostcasestheeconomicrateofreturnsurpassestherequiredthresholdof10percent.

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Sincethe1970s,cost–benefitanalysis(CBA)hasbeenacentraltoolforjustifyingpublicinvestmentinWorldBankoperationsand,underOperationalPolicy10.04,isrequiredforBank-financedprojects.Whenkeycostsorbenefitscannotbemonetized,thepolicypermitscost-effectivenessanalysis,comparingthecostsofalternativewaystoachieveagivenobjective(WorldBank,2010).Specificguidelinesareavailabletoteamstohelpdetermineifaprojectwillincreasewelfare,ensuringthatdiscountedbenefitsexceedcosts.

Economicratesofreturnarederivedfromacost-benefitanalysisthatweighsaproject'seconomiccostsagainstitsbenefits.Eacheconomicrateofreturncalculationinvolvescomparingwithacounterfactualscenario—anestimateofwhatmightoccurinthefutureiftheprojectdoesnotproceed.Althoughthisisoftenseenasthe“statusquo”theseprojectionsalsoaccountforevolvingtrends;forinstance,agrowingeconomyisexpectedtokeepexpandingwithouttheproject,andprivateinvestmentsmaystillhappen.Conversely,investmentscoulddecreaseinthecounterfactual,incasessuchasifpoweroutagesarepredictedtoworsenwithoutintervention.Theeconomicanalysismeasuresthedifferenceinvalueaddedbetweenthesetwoscenarios,takingintoaccountwhencostsandbenefitsoccur.Becauseimmediatebenefitsaremorevaluablethanthosereceivedlater,bothcostsandbenefitsarediscountedovertime.

Ex-anteERRsarepreparedduringappraisalandfinalizedatapproval;ex-postERRsareestimatedatcompletionaspartofprojectevaluation.Thedifferencebetweentheeconomicrateofreturn(ERR)atappraisalandatcompletionreflectstheresolutionofuncertaintyoverthelifeoftheproject.Onaverage,completionERRsarecalculatedaboutsevenyearsafterappraisal.Becauseadditionalinformationisavailableatcompletion,anidealcomparisonwouldbenchmarkthecompletionERRagainsttheappraisalERRwithinitsconfidenceinterval.Inpractice,sensitivity(risk)analysisisreportedinfrequentlyandisnotsystematicallycapturedinourdatabase.DifferencesbetweenexanteandexpostERRscanarisefromcostoverruns,implementationdelays,demandshortfalls,orchangesincomplementarypolicies.

Forinfrastructure,theavailabilityofbothex-anteandex-postERRsexceedshalfofallWorldBankprojectsinthesesectors.Evenso,ERRsaretypicallycomputedonlyforcomponentsamenabletoeconomicvaluation;inoursourcesystems,ratesaregenerallyreportedwhenthecomponentaccountsforatleast20percentoftotalcommitment.Reportinghasvariedovertime,peakingduring1985–1990,againintheearly2000s,andrisingsince2017.OurERRsamplerepresentsaround41.6%oftheuniverseofcompletedinfrastructureprojectsapprovedbefore2021(whichinclude5,893observations)andisalsorepresentativeacrossallincomecategories,exceptforhigh-incomecountries.High-incomecountriesareunderrepresentedbecause,aspreviouslymentioned,initialloansforpostwarreconstructioninEuropeweremadeundertheArticles'"specialcircumstances"provisionsinsteadofbeingallocatedtospecific,

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economicallyassessableprojects.

Figure1showsthedistributionofthewinsorizedexpostERRsforinfrastructureprojectsatcompletion,forrobustestimationandtoaccountformeasurementerrors.Valuesrangefrom−100to674percent,withameanofabout24.4percentandamedianof19percent.Thecorrespondingex-antefiguresatapprovalare25.4and20percent,respectively.

1WealsocollectedinformationonERRsforthenon-infrastructuresector,evenifnotrepresentativeoftheuniverse,toallowforcomparison,aswellastestingtherobustnessofourresultsforallWorldBankprojects.

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Figure1:DistributionofEconomicRateofReturn(atprojectcompletion)

EconomicRateofReturn(atcompletion)

p95

p50

p5

40

30

20

10

0

Notes:Theboxandwhiskerplotshowsthe25th,median,and75thpercentilewinsorizedeconomicrateofreturnatcompletion,withthewhiskersshowingtheupperandloweradjacentvalues.

Source:WBprojectERRdatabase,developedbytheauthors.

Figure2showsthatstageofdevelopmentandpolicyandinstitutionalenvironmentmatterforinfrastructureprojectreturns.First,theeconomicratesofreturnarehighestinlow-incomecountriesanddeclineasincomesincrease.Second,forprojectsincountriesidentifiedas“governancepoor”(determinedbytheirpositionrelativetothemedianonpolicyandinstitutionalindicators),themedianeconomicrateofreturnisabout27percent,about10percentagepointshigherthanin“governancerich”countries.

Figure2:DistributionofEconomicRateofReturnatcompletion,byincomeandgovernance

EconomicRateofReturn(atcompletion)

0

LICLMICUMICHIC

p95

p50

p5

40

30

20

10

(a)byincome

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(b)bygovernance

EconomicRateofReturn(atcompletion)

0

GovernancepoorGovernancerich

p95

p50

p5

40

30

20

10

Notes:Theboxandwhiskerplotshowsthe25th,median,and75thpercentilewinsorizedeconomicrateofreturnatcompletion,incountriesidentifiedas“bad”(determinedbytheirpositionrelativetothemedianCPIA,countrypolicyandinstitutionalindicators),withthewhiskersshowingtheupperandloweradjacentvalues.

Source:WBprojectERRdatabase,developedbytheauthors.

Oneinterpretationisthediminishingmarginalreturntocapital:wherethestocksofphysicalandhumancapitalarealreadyhigh,additionalpublicinvestmenttendstoyieldsmalleroutputgainsthanincapital-scarcesettings(Izquierdoetal.,2019andAdarovetal.,2024).Whilepoorgovernancehinderslong-term,sustainablegrowth,thescarcityofcapitalandinfrastructureintheseareascreatesascenariowherenew,targetedinvestmentscangeneratesignificantlyhighersocialandeconomicreturnscomparedtocapital-rich,highlydevelopednations.ArecentanalysisfoundthatinvestmentsincountrieswithlowEnvironmental,Social,andGovernance(ESG)scores,whichoftencorrelatewithweakergovernance,canprovidehigherreturnsforinternationalinvestors(Asteriouetal.,2024).Forexample,addingaroadtoanalreadydense,well-maintainednetworkislikelytodeliveralowerreturnthanconstructingafirst_bestconnectiontoaremoteregion.Inmorematuremarkets,publicinvestmentmayalsocrowdoutprivateactivityatthemargin,furtherdampeningmeasuredreturns.