Abstract
The World Bank is one of the most powerful sources of funding and assistance for developing countries. Studying its role and contribution to the world economy is an essential part of forming a comprehensive understanding of global economic processes. In the present research, the author examines the activity of the Bank and its constituents using the method of literary analysis. As the sources of data, the author used the information provided by the Bank itself, as well as by the researchers, who examined the projects of the Bank. In this work, the organizational structure and mission of the Bank are explained, a brief history of the Bank is given, various aspects of the activity of the World Bank are studied, their effectiveness assessed, and their influence defined. Both positive and negative influences of the World Bank on the economy, environment, and political affairs of developing countries are studied and presented.
Introduction
Background
The World Bank is a major financial institution and a part of the World Bank Group. It specializes in assisting developing countries on their way to progress. Its organizational structure allows it to provide various forms of competent assistance in addition to funding. The World Bank considers the reduction of extreme poverty in developing countries its main task, as well as promoting foreign investment and strengthening the trading connections between industrial and developing countries.
The domination of the World Bank, along with the International Monetary Fund, in the sphere of financial assistance to developing countries often causes extreme reactions, being seen as either a blessing or a menace. Additionally, the environmental activity of the World Bank receives contradictory commentaries. In general, the topic of the World Bank’s activity is quite complicated, which makes it particularly attractive for research.
Statement of the problem
The World Bank is one of the most powerful financial institutions of today. It is known that the mission of the Bank is to promote universal economic development. However, the role of the World Bank in the world economy is often exaggerated, underestimated, or completely misrepresented. Additionally, the participation (or, more accurately, domination) of developed countries in its activity receives contradictory reactions. Therefore, a need exists to conduct a comprehensive analysis of the role of the World Bank and its contribution to the global economy.
Hypothesis
Being ready to start the work on the present research, the author had an existing hypothesis in mind. According to this hypothesis, the role of the World Bank, being quite significant, had both positive and negative influence on the process of economic development in the countries, to which the
The bank is intended to assist. In the course of the research, the accuracy of the hypothesis has been supported by evidence.
Objectives of the study
Having proceeded to the research, the author established the following objectives:
- to study the organizational structure of the World Bank in order to understand how this institution operates;
- to explore the history of the World Bank to find out how it was fulfilling its task in different periods;
- to examine the current activity of the World Bank in developing countries, including financial and technical assistance, environmental activity, and the activity in the social and political spheres;
- to assess the positive and/or negative impact of this activity on the economic, social, and political state of developing countries;
- to study the points of view at the activity of the Bank.
Significance of the study
The current study presents a full analysis of the role of the World Bank and its contribution to the contemporary world economy. It allows understanding how the Bank addresses economic, financial, environmental, social, and political problems in developing countries. It would be useful for those, who are interested in studying the activity of international financial institutions or the economic conditions of developing countries.
Scope of the study
In the present research, the author studies the structure of the World Bank, its history, and the qualitative side, i.e. nature and special features, of its current activities related to providing various forms of help to developing countries in the financial, technical, environmental, social, and political spheres. The quantitative side, i.e. the figures related to funding and other economic measurements, is not included in the research.
Review of Literature
To perform this research, the author used the following literature.
The official website of the World Bank provides general information on the nature of the World Bank’s activities, the organizational structure of the World Bank and the World Bank group, and the functions of the parts of the World Bank. Additionally, the Britannica entry on the World Bank allows formulating a brief history of the World Bank with the concentration on the specific activities of this institution in particular periods.
The World Bank annual report 2015 is an official statement of the World Bank explaining how the IBRD ad IDA (the two World Bank’s main institutions) were collaborating with developing countries of all the regions of the world to struggle with poverty, promote universal prosperity, and establish the model of sustainable economic development during the financial year 2015. It offers comprehensive and full information on the work of the Bank and allows to embrace the range of the activity of this organization.
“A guide to World Bank” is a comprehensive guide, which presents an introduction to the mission, history, organizational structure, strategy, regional coverage, organizational challenges, plans of development, covered industry sectors, miscellaneous issues addressed, and figures related to the World Bank. The book was prepared under the supervision of World Bank officials. For the author of this research, this guide was a useful source of the information on the projects launched and funded by the World Bank in developing countries.
An article prepared by the Bretton Woods Project was also used in the research. Bretton Woods Project is a non-government organization, whose task is to monitor the influence of the World Bank and the International Monetary Fund on the situation in the world. In the article “What are the main concerns and criticism about the World Bank and IMF?” the authors summarized the main reasons, for which these two institutions are often portrayed negatively
In the study “The Contribution of the IMF and the World Bank to economic freedom,” conducted by B. Boockmann and A. Dreher, the authors, German scholars, analyzed the impact of the World Bank and IMF on Gwartney’s index of economic freedom. The authors measured the flow of funds in 85 countries from the 70-s to 90-s and the programs of the World Bank and IMF in these countries. For this research, it was a valuable source of information on the role of the World Bank in the global economy.
The work of Naomi Klein, “Fences and windows: dispatches from the front lines of the globalization debate,” represents the leftist opinion in the set of literature prepared for this research. In her book, Klein assesses the activity of the World Bank from the developing countries based on the notion that the United States strives to world domination and use controlled financial institutions, especially the IMF and the World Bank, to reach their goal.
The collection of the works and speeches of Joseph Stiglitz, the former Chief Economist of the World Bank, presents a rare opportunity to study the problems of the activity of the World Bank from inside. Stiglitz severely criticizes the economic methods, which the World Bank employs for the implementation of its projects in developing countries. For the author of this research, this book was an important source of the negative aspect of the role of the World Bank.
Methodology
Research design
In the course of this research, the author had to identify the role of the World Bank in the global economy and its contribution to that economy. To fulfill this task, the author established the global economy as a dependent variable, the actions of the World Bank as an independent variable, and the influence of the World Bank on the global economy as a subject. Case study by the means of literature analysis was selected as a research method. The information related to the activity of the World Bank was collected and analyzed to find out the nature of the Bank’s role in the world economy.
Data sources
As a source of data, both inside and outside information was collected. As inside information, the author used the information related to the details of the activity of the Bank provided by the World Bank itself, such as the annual report of the World Bank and “A guide to World Bank.” As outside information, the author used the works of the researchers not directly connected (or no longer connected) with the activity of the World Bank, such as B. Brockmann and A. Dreher, N. Klein, Joseph Stiglitz, and the members of the Bretton Woods Project.
Research setting and sample
For conducting this research, the author chose a natural research setting since due to the specificity of the object of study other research settings are unavailable. The World Bank, a global financial institution providing funds to developing countries, was studied in the course of its activity in various parts of the world. In-depth explanatory data was collected from a sample consisting of the World Bank’s activities with the use of random theoretical sampling.
Data analysis tools
As a data analysis tool for this research, the author selected structured data collection instruments. The author employed inductive approach, which was
consistent with the task since it required to group the collected data with the use of an already established framework and then examine the relationship between the groups of data.
Analysis and Discussion
What is the World Bank
The World Bank is a global financial organization, which lends to developing countries and provides them with financial assistance in order to boost their economic development. Rather than an ordinary bank, the World Bank is a partnership organization. Its primary goals are to reduce extreme poverty and promote prosperity around the world by supporting the increase of the income. The World Bank provides zero or low-interest loans to developing countries and aids them in such spheres as education, public administration, health, agriculture, industry development, resources management, infrastructure, etc. (What we do 2015).
The World Bank is a part of World Bank Group, a United Nations organ, which also includes the International Centre for Settlement of Investment Disputes, the Multilateral Investment Guarantee Agency, and the International Finance Corporation. The World Bank itself consists of two organizations: the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD). The World Bank works in collaboration with the International Monetary Fund. The 188 shareholder countries of the World Bank form a Board of Governors, who delegate specific duties to the Board of Directors. The chair of their meetings is the President of the World Bank, who is also is the President of the World Bank Group (Organization 2015).
A brief history of the World Bank
The creation of the World Bank was announced in 1944 at the Bretton Woods Conference; the intention was to create a new global economic system to deal with the outcomes of World War II. In 1946, the Bank started working and issued loans for the Western European countries, which needed postwar reconstruction
In the mid-50s, the World Bank gained a considerable role in investments in developing countries, mainly for infrastructural projects. From the late 60-s to early 80-s, the Bank was under the leadership of Robert McNamara, who established the concept of “sustainable economic development” that was related to securing economic growth in developing countries, as well as environmental protection. The World Bank still maintains this concept. In the 80-s and 90-s, the Bank was struggling with such diseases as malaria, tuberculosis, and AIDS in developing countries. In 2012, Jim Yong Kim, a Korean American anthropologist, and the physician was elected President of the World Bank (Chossudovsky 2015, para. 2-4).
The role of the World Bank and its contribution to the world economy
Along with the International Monetary Fund, the World Bank is the primary channel for the financial aid to developing countries. The World Bank is currently participating in over 1,800 projects in multiple developing countries and various sectors of the economy. It covers countries of Africa, East Asia and the Pacific, South Asia, Europe, Central Asia, Middle East, North and Sub-Saharan Africa, and Latin America and the Caribbean (World Bank 2015).
The Bank is mainly focused on the following areas of work: 1) counties with the highest level of poverty, especially Africa; 2) countries that need after-conflict reconstruction and countries with unstable governments; 3) countries with middle income; 4) global problems, especially environmental ones; 5) countries of the Arab world; 6) problems of education over the world. With its low interest or interest-free loans, the World Bank ensures the development of various sectors of the economy in an aided country and requires a guarantee of repaying. The International Development Association offers the so-called “soft loans,” which are interest-free, allowed to be repaid in several decades, with ten years before the debtor needs to start repayment.
In addition, the bonds of the World Bank are rated AAA, which allows the Bank to borrow from cheaper sources. Due to it, countries with low credit ratings receive an available source of funding. It provides developing countries with opportunities to fund their development. The role of the World Bank in providing financial help to the developing countries is particularly significant since its lending conditions are used by export credit agencies and commercial banks as a basis for parallel lending to these countries. The World Bank is also responsible for offering debt relief for states with a heavy debt burden. Between 1999 and 2011, 40 countries received debt relief services from the Bank, 32 arrived at the competition point where debt relief is irrevocable, and 4 received interim assistance (World Bank 2011, p. 167).
The World Bank is also an essential instrument in building cooperation between industrial and developed countries. It is also an instrument of transition for developing countries to the level of sustainable development. The World Bank defines a direction of economic policy in each country, to which it provides help, thus influencing global economic policy.
The role, which the World Bank plays in global development is not restricted to a purely economic aspect. The Bank supports young people in developing countries, providing them with education, health services, employment, and nutrition (World Bank 2011, p. 162). It also addresses environmental problems, such as climate change. For instance, while providing aid to developing countries, the Bank selects such measures of securing economic growth as to reduce the risk of environmental harm, as well as it promotes responsible use of natural resources, which is often a problem in developing countries (World Bank 2011, p. 163-164).
The Bank also leads a global effort against corruption: it has supported more than 600 local anti-corruption programs worldwide (World Bank 2011, p. 165). The World Bank has a Special Education Department to address the needs of education in developing countries. Apart from the programs that satisfy general needs in education, the Bank has created the World Bank Institute, which maintains a global knowledge network in the fields of international economic and social development. The Bank supports the efforts of private educators as well (World Bank 2011, p. 168-170).
The organization considers the issue of energy to be a serious aspect of economic development and promotes responsible consumption of energy. The Bank supports the efforts of the governments of developing countries to provide clean and accessible energy to their citizens through financial aid, advising, technical assistance, and knowledge sharing. It helps these governments to receive investment for electrification projects and other energy plans. The Bank promotes the use of renewable energy as well (World Bank 2011, p. 170-171). Another problem that the Bank addresses is the use of mineral resources. The Bank helps developing countries to concentrate their efforts on extracting mineral resources and using them efficiently and responsibly.
It requires that the governments adjust their policy to the established environmental standards, which benefits the environment (World Bank 2011, p. 174-175). The Fragile and Conflict-Affected Group, a department within the Bank, works with conflict-affected areas, attempts to prevent conflicts whenever possible, and assists in post-conflict reconstruction. It operates the State and Peace Building Fund, which serves as a funding source for the needs of damaged areas. Additionally, the World Bank provides insurance for the countries, to whom other insurers refuse to provide services because of their post-conflict situation (World Bank 2011, p. 180-181).
A 2003 study has concluded that many programs conducted by the World Bank have a positive influence on establishing economic freedom in developing countries. The programs also have a positive impact on the difference between the exchange rates of the black and official markets. Additionally, the Bank’s programs indirectly affect the exchange rate, making governments operate more liberally, thus making overvalued currencies devalue and reduce the black market premium. The World Bank has a significant impact on the use of conscripts in national systems of defense (Boockmann & Dreher, 2003).
Overall, the World Bank has assumed a leading role in promoting and assisting in the economic progress of developing countries, as well as the well-being of their citizens.
Criticism towards the role of the World Bank.
Despite the positive results of the activity of the World Bank discussed above, many thinkers consider that the role of the World Bank in the global economy is negative or they emphasize certain negative aspects of the role, which the policy of the World Bank plays in economic processes.
The main anxiety of the critics is the requirements, which the World Bank presents to the borrowers. The Bank focuses on privatization and deregulation of the national sectors of industry in developing countries. These requirements do not take into consideration the specific circumstances of each particular country. Additionally, criticism exists towards the types of projects, which it funds. Some infrastructural projects contradict with the local customs, which raises ethical problems. For instance, in countries that include the territories of indigenous nations, the construction of hydroelectric dams leads to the displacement of these nations. Additionally, while advocating environmental protection and climate change, the Bank funds heavily polluting kinds of industries.
The activity of the Bank leads to the diminution of the role of government in providing vital social services, such as medical ones and education, to the population. The structure of the World Bank maintains the domination of developed countries, such as the USA and the UK, which makes developing countries dependent on them and allows developed countries to control the political, social, and economic life of the dependants (Bretton Woods Project 2005, para. 1-8). The last concern is often expressed by leftist thinkers, such as Naomi Klein (Klein 2010, p. 9). Joseph Stiglitz, the ex-Chief Economist of the Bank, considers that its contribution to the world economy is harmful. To his opinion, the way, in which the Bank implements its projects of economic development, is inconsistent with the capabilities of the weak economies of underdeveloped countries (Stiglitz & Chang 2001).
Thus, the role of the World Bank in the world economy, though definitely being considered, is ambiguous in its quality. The aspects of this role can be both positive and negative.
Summary, Conclusion, and Recommendations
The World Bank is a major international financial institution, which provides aid to developing countries, mainly in the form of funding, and also assists in a number of other spheres, including education. Previously to conducting this research, the author had a hypothesis, according to which the World Bank played a considerable role in global economic processes and had a positive, as well as negative, influence on the economy of developing countries.
Among the objectives established for this research was to explore the history and organizational structure of the World Bank, study various aspects of its activity in developing countries, and assess the influence of this activity on the economic, social, and political situation in these countries as a contribution of the World Bank to the global economy. The presented research offers a comprehensive analysis of the role, which the World Bank plays in the world economy. The research includes the qualitative side of the Bank’s activity, i.e. its nature and influence, and does not include the quantitative side.
The analysis of the relevant literature includes the information from the website of the World Bank, which allows learning about the structure and mission of this organization, the Annual report of the Bank, which focuses on its activity and results, and “A Guide to World Bank,” which presents a full introduction to the structure, mission, and work of the Bank. As for the literature not generated by the Bank, it includes a study analyzing the Bank’s contribution to economic freedom, a critical work of the leftist activist N. Klein, a summary of criticism towards the World Bank prepared by Bretton Woods Project, and the speeches of J. Stiglitz, the former Chief Economist of the Bank.
To perform the research, the author used the following methodology. As a research design, case study with the elements of literary analysis was selected. The world economy was chosen as a dependent variable and the activity of the World Bank as an independent one. As data sources, the author used both the information provided by the World Bank and the works of independent researchers, who studied the Bank’s activity. Natural setting was chosen as a research setting, and the sample consisted of the activities of the World Bank. Structured data collection instruments and inductive analysis were employed as data analysis tools.
In the Analysis and Discussion part, the author examined the organizational structure of the World Bank and its history in order to understand the original intention of this organization and the way this intention was implemented. Next, various forms of the Bank’s activity in developing countries were studied. Finally, the author studied the assessment of the role of the World Bank by various thinkers.
In conclusion, the World Bank plays a considerable role in global economic processes, and it has a significant influence on the world economy. Its funds are the main source of financing the economic progress of developing countries. However, the activity of the Bank is occasionally harming the environment, its economic projects often do not consider the unique circumstances of a particular country, and it is controlled by developed countries.
The following recommendations can be suggested by the author to the World Bank. First, its economic project should be shaped by a precise situation in a country rather than by generic ideas of the Bank’s economists. For instance, if a country has a weak or no tradition of private entrepreneurship, the projects of financial assistance should not rely mostly on the private initiative, even though a private sector needs to be developed. Second, the Bank should not fund projects that damage the environment.
Rather than supporting heavily polluting industries, the Bank should fund the changes in a country’s industrial sector as to better address the problems of the environment. The Bank already promotes the use of clean energy, so there is a need to do the same in the industry sector. Finally, the Bank should alter its approach to the elections of its President. Throughout the Bank’s history, its President has always been an American. However, since the Bank is intended to help developing countries, it appears natural to appoint a person from one of these countries President. Not only would such a President be more knowledgeable about the needs of developing countries, but it also would benefit the Bank’s reputation.
References
Boockmann, B & Dreher, A 2003, ‘The contribution of the IMF and the World Bank to economic freedom,’ European Journal of Political Economy, vol. 19, no. 3, pp. 633-649.
Bretton Woods Project 2005, What are the main concerns and criticism about the World Bank and IMF? Web.
Chossudovsky, M 2015, World Bank, In: Encyclopaedia Britannica, Web.
Klein, N 2010, Fences and windows: Dispatches from the front lines of the globalization debate, Knopf Canada, Toronto, Canada.
Stiglitz, J & Chang, N 2001, Joseph Stiglitz and the World Bank: The rebel within, Anthem Press, London, UK.
The World Bank 2011, A guide to World Bank, The World Bank, Washington, D.C.
The World Bank 2015, Organization, Web.
The World Bank 2015, The World Bank annual report 2015, Web.
The World Bank 2015, What we do, Web.