Building State Capacity : What Is the Impact of Development Projects(2021/12/08)/Di Maro,VincenzoEvans,David K.Khemani,StutiDe Gouvea Scot De Arruda,Thiago.World Bank

Although research has established the importance of state capacity in economic development, less is known about how state capacity comes about and the role of external partners in the process. This paper estimates the impact of an external project designed to build state capacity in a low-income country. Specifically, it evaluates a multilateral development bank project in Tanzania, designed to incentivize investments in local state capacity by offering grants conditional on institutional performance scores. This program typifies many development projects to build state capacity implemented around the world by development agencies. The paper uses a difference-in-differences methodology to estimate the project impact, comparing outcomes between 18 project and 22 non-project local governments over 2016–18. Outcomes were measured through two rounds of primary surveys of nearly 500 local government officials and nearly 3,000 households. Over the course of the project, measured state capacity improved in project areas, but due to comparable gains in non-project areas, the project’s value-added to change in state capacity is estimated to be zero across all the dozens of relevant variables in the surveys. The data suggest that improvements in state capacity in Tanzania resulted from endogenous changes in trust and legitimacy in the country rather than from financial incentives offered by external partners.

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