Measuring Up : New Directions for Environmental Programs at the World Bank

The World Bank's new environment
strategy advocates cost-effective reduction of air and water
pollutants that are most harmful to human health. In
addition, it addresses threats to the livelihood of over one
billion people who live on fragile lands-lands that are
steeply sloped, arid, or covered by natural forests. The new
approach will require accurate information about
environmental threats to health and livelihood, as well as
an appropriate resource-allocation strategy. Drawing on
recent research at the World Bank and elsewhere, this paper
attempts to apply an optimal investment approach. It
develops a rule for optimal cross-country resource
allocation that reflects the Bank's investment policy.
Using this rule, the paper estimates optimal country shares
of the Bank's environmental investments from two sets
of variables: threats from outdoor air pollution, water
pollution, and fragile lands; and estimates of the
likelihood that Bank projects will succeed. The paper
combines the country shares with the Bank's investment
data to estimate optimal country allocations for each
environmental problem. Finally, it aggregates the country
results to allocations for the major regions in which the
Bank operates. Combining optimal investments for pollution
and fragile lands, it finds that the largest share of total
investment goes to East Asia (44 percent), followed by South
Asia (21 percent) and Sub-Saharan Africa (19 percent). Other
regions get significantly lower shares.