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This report is a pilot cross-country study that summarizes 10 years (1998-2008) of the World Bank's engagement at the state level in selected large federal countries and combines elements of a country assistance evaluation and a thematic review. It looks at several strategic and operational questions posed by state-level engagement, among them the selection of states, the scope, and the modalities of engagement. According to the report, two tendencies often in tension featured in most approaches for selection of states for direct engagement. One was to support better-performing, reformist states, while the other was to support the poorest states as a more direct route to reducing poverty. Overall, the study confirms the desirability of continued selective lending in a few focus states. Among other findings: the Bank's engagement with progressive reformist states has added value and has been highly appreciated, but in order to enhance the poverty impact of state level interventions, greater weight should be given to the needs of poorest states by balancing states' propensity to reform and the concentration of poverty within them; continued focus on public finance management appears sound, irrespective of whether engagement is confined to this area or serves as an entry point for broader engagement; there is considerable scope for greater impact from knowledge transfer between states and countries and expanded knowledge services to the state-level clients.

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