Does it Take Two to Tango? Improving Cooperation between the IMF and the World Bank: Theory and Empirical Evidence

This paper analyzes the impact of di¤erent governance structures on the degree of Bank-Fund cooperation, focusing on the quality of their information transmission. It compares the performance of a decentralized governance with that of a centralized one. A centralized structure better addresses the necessity of coordinating policy actions, but greater consistency in policy actions will be achieved at the expenses of a less satisfactory adaptation to "local conditions." It is shown that when the need for coor- dination is relevant, a centralized governance allows to achieve a greater level of overall payo¤s. In the real world the governance structure of the two institutions is certainly decentralized. A testable implication of the model would then be to see whether Bank- Fund s coordination is really important for their impact on recipient countries. The empirical evidence shows that a Bank-Fund simultaneous intervention is bene cial to growth and that such bene cial e¤ect is increasing with the willingness to coordinate of the two organizations. This evidence would then be in favor of a (more) centralized governance.