The World System and the Hollowing Out of State Capacity: How Structural Adjustment Programs Affect Bureaucratic Quality in Developing Countries

Abstract

The administrative ability of the state to deliver effective policy is essential for economic development. While sociologists have long devoted attention to domestic forces underpinning state capacity, the authors focus on world system pressures from Western-dominated international organizations. Scrutinizing policy reforms mandated by the International Monetary Fund (IMF), the authors argue that “structural conditions” exert deleterious effects on bureaucratic quality by increasing the risk of bureaucrats falling prey to special interests and narrowing potential policy instruments available to them. The authors test these arguments using a new data set on IMF conditionality from 1985 to 2014. Their analysis shows that structural conditions—especially conditions on privatization, price deregulation, and public sector employment—reduce bureaucratic quality. Using instrumentation techniques, the authors also discount the possibility that the relationship is driven by the IMF imposing structural conditions precisely in countries with low bureaucratic quality. A careful reconsideration of IMF policy reforms is therefore required to avoid undermining local institutions.