Real-life Case Study: The World Bank and Economic Assistance

Economic Institutions

As World War II drew to a close, much of Europe lay in ruins, and the World Bank was created to help finance the reconstruction. Within a few years, the World Bank changed its mission from helping rebuild war-torn areas to helping developing nations achieve stable economic growth.

Function The primary function of the World Bank is to make loans to countries unable to borrow from other sources. Its loans are used for many purposes: to improve health care, to build transportation networks, and to promote economic reforms. The Bank makes about $20 billion in new loans each year.

The World Bank raises most of its money in financial markets by issuing bonds. In addition, it receives contributions from its member nations, including industrialized nations such as the United States and Japan. Even some developing nations, once borrowers from the World Bank themselves, make contributions.

The World Bank helps finance highway construction in developing nations such as Colombia.

Controversy Despite its worthwhile goals, the World Bank has sometimes been a source of controversy. Some critics have argued that the United States would be better off using its money to help less fortunate American citizens. Others have criticized the Bank for not holding developing nations fully accountable for effectively carrying out projects it has funded.

Accomplishments Still, the World Bank can boast of many significant accomplishments. It has helped many developing countries improve roads, hospitals, schools, and water supplies. In addition, by strengthening the economies of less developed countries, the World Bank has helped build new markets for American goods, which in turn benefits the economy of the United States.

Applying Economic Ideas

1. How does the World Bank work to improve conditions in developing nations?
2. The table shows how the World Bank classifies selected countries according to per capita GNI. What factors might have led to some countries being poor for so long?

   Per Capita Earnings in Selected Countries

   GNI per Capita Earnings	Countries
   High income (more than $9,076)	Germany Japan	South Korea United States
   Upper middle income ($2,936–$9,075)	Malaysia Mexico	Poland Saudi Arabia
   Lower middle income ($736–$2,935)	China Iran	Jamaica Philippines
   Low income ($735 or less)	Indai Keyna	North Korea Vietnam

Source: The World Bank

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