Supervision and Performance: The Case of World Bank Projects

This paper explores empirical aspects of the relation between supervision and project performance. I focus on development projects funded by the World Bank and on supervision done by the World Bank. The World Bank is the preeminent international development organization both in terms of money lent and leadership; furthermore, data measuring project performance and supervision are relatively comprehensive. The link between supervision and performance is of theoretical interest because it illuminates one side of World Bank-borrower interaction and of practical interest because supervision is an instrument controlled by the World Bank which may improve project performance. Data are from 1426 World Bank-funded projects completed between 1981 and 1991. Analysis of the influence of World Bank supervision on project performance uses annual supervision and annual interim performance ratings. The annual updating process which generates the discrete interim ratings is described by an ordered probit likelihood function. Maximum likelihood estimates indicate a positive impact of early supervision on performance; late supervision has significantly less influence. The estimation predicts that a significant and persistent increase in the level of supervision may lead to a gain of several percentage points in the economic rate of return. Because of the size of World Bank-funded projects, the potential gains from increasing supervision far outweigh the costs