Does economic analysis improve the quality of foreign assistance?

The World Bank undertakes an annual expenditure of around $60 million on co untry-specific economic analysis and advice for its member developing count ries. What is the impact of this economic and sector work on the quality of World Bank lending It would be useful to know whether east analytical work has generated measurable economic benefits that would justify its continue d provision in an environment of increasingly scarce resources. This article sets out an idealized model of decision making in which a coun try manager makes a broad allocation of resources between lending services and economic and sector work. Given that decision, the task manager for eac h project makes project-specific decisions with respect to the allocation o f resources between preparation and supervision. The analysis Indicates tha t economic and sector work has a significant positive impact on the quality of World Bank loans. The results provide clear evidence of underinvestment in economic and sector work. And the analysis shows that resources could b e switched from preparation and supervision to economic and sector work to the benefit of both the quality of programs and level of disbursements.