How do international institutions affect political liberalization in member states? Motivated by an examination of the World Bank loans program, this article shows that institutions can incentivize liberalization by offering opportunities for countries to become associated with advanced, wealthy members. In the World Bank, when a loan recipient reaches a specified level of economic development, it becomes eligible to graduate from borrower status to lender status. Using a regression discontinuity design, the study demonstrates that this incentive motivates states to improve their domestic behavior with respect to human rights and democracy. Combining qualitative and quantitative evidence, the results suggest that the desire to become a member of this elite group is responsible for motivating member states to reform due to the belief that such membership brings diffuse international and domestic benefits.
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