What It Is:
How It Works/Example:
Based in Washington, D.C., the World Bank is funded and managed by several member countries, with the United States providing the majority of funding and holding the highest percentage of voting power.
The World Bank disburses funds to undeveloped and developing countries to foster agricultural development, literacy programs and post-war reconstruction. These funds also support a wide range of infrastructure programs that include the construction of ports, highways, water purification systems and power plants. For the poorest of the world's countries, the bank's assistance plans are based on poverty reduction strategies that are closely taidlored to that country's particular needs.
As with other international organizations involved in economic policy, the World Bank employs a large staff of economists and analysts who scrutinize all regions of the world to assist the bank in creating suitable aid programs for worthy recipients. This independent, unbiased research provides foreign investors with a roadmap as to which countries provide the basis for stable and promising investments.
To illustrate, suppose developing country XYZ has been experiencing increasing poverty. In an effort to stem the negative socioeconomic effects of this rising poverty, the national government solicits aid from the World Bank. The World Bank will likely send representative specialists to determine why country XYZ’s poverty rate continues to rise. Once the primary causes of the poverty have been determined, the World Bank may subsequently allocate financial aid to fund social programs fostering employment and job-related skills development. Following the implementation of these programs, the World Bank may reexamine the socioeconomic conditions of country XYZ to determine whether or not the poverty level has been stabilized.
Why It Matters:
Unlike commercial or investment banks, the World Bank functions as a humanitarian source of financial aid earmarked specifically where warranted by social and economic circumstances. In this sense, the World Bank serves as a common source of financing for programs that improve the quality of life for people in developing countries.
In addition, the World Bank's assessments can serve as a leading indicator of the direction in which foreign economies are heading. The World Bank’s policies and programs can also indicate which countries are likely to experience an upward trajectory and become a favorable climate for investment, due to the stimulatory nature of the bank's capital investments.