The theory of economic development and the World Bank’s identity crisis

ABSTRACT This paper discusses World Bank’s identity while surveys development economics. Three crises are identified: (1) the Bank was created to finance state infrastructure projects according to the development economics relevance given to externalities, but since the neoliberal wave dominated Washington, its mission lost clarity; (2) the Bank, that is supposed to finance development, stoped to have a positive cash flow with many developing countries; and (3) the Bank is assumed to support growth of the developing countries, but in the debt crisis it clearly aligned with its major shareholders. Yet, the Bank keeps a major role in the world, as it is increasingly turning into a service institution that counts with highly competent economists, as it supports much needed market-oriented reforms, and as it promotes investments in human capital.