Efficiency Before Effectiveness: The Case of the Inter-American Development Bank

Projects implemented by multilateral development banks (MDBs) seek to support countries’ economic and social development. In most cases, aid is provided  for investment projects that support development or implementation of medium-term economic and legal reforms. The literature on the effectiveness of these development projects has traditionally focused on ex-post analysis. While this is the appropriate method of measuring benefits, good ex-post evaluation requires a first step of measuring the efficiency in the execution of investment projects.

A working paper by Guillermo Lagarda, Jennifer Linares, Arnoldo Lopez Marmolejo and Osmel Manzano focuses on life-cycle factors of development programs and investments. Using an Inter-American Development Bank (IDB) database with information from various departments, the authors identify the factors that are associated with faster or slower disbursement on several stages of the projects’ life cycle. The duration of an investment project is associated with preparation and execution-related factors as well as external country factors. 

The authors find evidence that a sound macroeconomic and fiscal environment in countries is important for good execution. The paper also demonstrates that delays in project planning and execution substantially extend project lives. This suggests the need to continue improving  efficiency. There is also evidence that poor strategic planning capacity, together with weak procurement systems, negatively affects execution. Ultimately, IDB’s strategic planning should account for political cycles and legislative ratification requirements, or seek mechanisms that allow for these constraints to be addressed.