The Political Economy of Policy Reform: Issues and Implications for Policy Dialogue and Development Operations

World Bank


How can donors improve the effectiveness of policy reform processes? This study from the World Bank addresses the political economy of sector reform in agricultural marketing, and water supply and sanitation. It uses a social analysis perspective to analyse stakeholder interests, incentives, institutions, risks and opportunities. Development agencies should undertake timely political economy analysis and establish a sustainable process for building broad coalitions. They should also promote transformative institutional change that includes empowering forms of bottom-up accountability.

Sustainable reform processes that improve equity and effectiveness in economic and social sectors are important elements of national poverty reduction strategies. In order to engage successfully in these processes, development agencies need to understand the significance of power relations within the sector and the links to national political processes. They also need to understand the relationship between policy-induced changes in incentives and sanctions, and changes in behaviour and interests.

The study offers a diagnostic framework and a framework of actions that can translate the findings of case analysis into more effective reform processes. The diagnostic framework distinguishes between the reform context, the reform arena and the reform process:

  • The reform context refers to a country’s socio-economic, political, cultural and historical characteristics, including its development trajectory and the development aid architecture.
  • The reform agenda itself is part of the context. It is important to understand its underlying assumptions, how and why it was tabled and by whom.
  • The reform arena consists of the institutions that govern relations and behaviour within the sector. It includes the stakeholders with their economic and political interests that drive and are affected by the policy reforms.
  • The reform process refers to change through information flows, public debate, coalition building, participation, transparency, communication and the interaction of actors in the policy arena over time.

Through the systematic combination of the diagnostic and operational elements, the framework helps development practitioners to design more equitable and sustainable reforms and operations. In particular, development practitioners should:

  • Acquire a contextual understanding of political economy issues through analysis, dialogue and monitoring. This should include insight into the likely distributional fairness of any reform, as well as access to data that will improve operational design.
  • Interact with a wider range of stakeholders, including sub-national governments, parliament, including the political opposition, private sector and civil society.
  • Link more systematic evidence generation with more effective negotiation and communication strategies.
  • Apply a participatory partnership approach, based on listening and learning. Local expertise should be valued and used more. The practices and procedures of development agencies should become more process-oriented and flexible.  


World Bank, 2008, 'The Political Economy of Policy Reform: Issues and Implications for Policy Dialogue and Development Operations', World Bank, Washington, D.C.