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The politics of loan pricing in multilateral development banks

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  • Chris Humphrey

Abstract

This paper explores the political factors that determine the price of loans offered to borrowing countries by multilateral development banks (MDBs). The reasons why MDBs set their prices at a given level and why those prices might vary from one MDB to another has received scant attention in academia, even though inexpensive loan costs are the primary reason countries borrow from MDBs. The paper explores these issues in three MDBs, each with a different composition of shareholding countries - the World Bank (controlled by wealthy non-borrowing countries), the Inter-American Development Bank (IADB) (more evenly balanced between non-borrowing and borrowing countries) and the Andean Development Corporation (CAF) (controlled by borrowing countries). Evidence indicates that MDB shareholder composition has a major impact on loan prices, in sometimes unexpected ways. While the backing of wealthy countries allows the World Bank and IADB to raise resources on capital markets more cheaply than the CAF, the interests of those same non-borrowing countries in using MDB net income make loan costs significantly higher at those MDBs - especially the World Bank - than they would be otherwise. These results provide support to an institutionalist approach in focusing on the importance of shareholding and voting rules to better understand MDB activities.

Suggested Citation

  • Chris Humphrey, 2014. "The politics of loan pricing in multilateral development banks," Review of International Political Economy, Taylor & Francis Journals, vol. 21(3), pages 611-639, June.
    • Handle: RePEc:taf:rripxx:v:21:y:2014:i:3:p:611-639
    DOI: 10.1080/09692290.2013.858365
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    Cited by:

    1. Galindo, Arturo J. & Panizza, Ugo, 2018. "The cyclicality of international public sector borrowing in developing countries: Does the lender matter?," World Development, Elsevier, vol. 112(C), pages 119-135.
    2. Cormier, Ben, 2022. "Partisan external borrowing in middle-income countries," LSE Research Online Documents on Economics 113929, London School of Economics and Political Science, LSE Library.
    3. McHugh, Christopher A., 2023. "Competitive conditions in development finance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    4. William Perraudin & Andrew Powell & Peng Yang, 2016. "Multilateral Development Bank Ratings and Preferred Creditor Status," IDB Publications (Working Papers) 94656, Inter-American Development Bank.
    5. Bisogno, Marcelo & Fleiss, Pablo & Artecona, Raquel, 2019. "Financing development in Latin America and the Caribbean: The role and perspectives of multilateral development banks," Studies and Perspectives – ECLAC Office in Washington 44608, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    6. Daniel L. Nielson & Bradley Parks & Michael J. Tierney, 2017. "International organizations and development finance: Introduction to the special issue," The Review of International Organizations, Springer, vol. 12(2), pages 157-169, June.
    7. Meibo Huang & Na Chen & Yanhong Chen, 2016. "An analysis on the potential competitiveness of the Asian Infrastructure Investment Bank," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 23(2), pages 19-34, December.
    8. Chris Humphrey, 2017. "He who pays the piper calls the tune: Credit rating agencies and multilateral development banks," The Review of International Organizations, Springer, vol. 12(2), pages 281-306, June.
    9. Larionova, Marina (Ларионова, Марина) & Shelepov, Andrey (Шелепов, Андрей) & Sakharov, Andrey (Сахаров, Андрей) & Kolmar, Olga (Колмар, Ольга) & Safonkina, Elizaveta (Сафонкина, Елизавета) & Popova, I, 2018. "Comparative Analysis of the Formation of the New Development Bank (Nbb) and the Asian Bank for Infrastructure Investments (Abia) [Сравнительный Анализ Становления Нового Банка Развития (Нбр) И Азиа," Working Papers 041814, Russian Presidential Academy of National Economy and Public Administration.
    10. Fleiss, Pablo, 2021. "Multilateral development banks in Latin America: Recent trends, the response to the pandemic, and the forthcoming role," Studies and Perspectives – ECLAC Office in Washington 46916, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    11. Humphrey, Chris & Michaelowa, Katharina, 2019. "China in Africa: Competition for traditional development finance institutions?," World Development, Elsevier, vol. 120(C), pages 15-28.
    12. Avellán, Leopoldo & Galindo, Arturo J. & Lotti, Giulia, 2022. "Following public finances: The mirage of MDBs countercyclicality," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 372-385.
    13. Adrian Robert Bazbauers, 2022. "Translating climate strategies into action: An analysis of the sustainable, green, and resilient city action plans of the multilateral development banks," Development Policy Review, Overseas Development Institute, vol. 40(2), March.
    14. Strand, Jonathan R. & Zappile, Tina M., 2015. "Always Vote for Principle, Though You May Vote Alone: Explaining United States Political Support for Multilateral Development Loans," World Development, Elsevier, vol. 72(C), pages 224-239.
    15. Perraudin, William & Powell, Andrew & Yang, Peng, 2016. "Multilateral Development Bank Ratings and Preferred Creditor Status," IDB Publications (Working Papers) 7686, Inter-American Development Bank.
    16. Christopher Humphrey, 2017. "Ruth Ben-Artzi. 2016. Regional development banks in comparison: Banking strategies versus development goals (New York, NY: Cambridge University Press)," The Review of International Organizations, Springer, vol. 12(3), pages 485-489, September.
    17. Chris Humphrey, 2019. "‘Minilateral’ Development Banks: What the Rise of Africa's Trade and Development Bank says about Multilateral Governance," Development and Change, International Institute of Social Studies, vol. 50(1), pages 164-190, January.

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