IDEAS home Printed from https://ideas.repec.org/a/ibn/ibrjnl/v9y2016i7p12-23.html
   My bibliography  Save this article

Does Conditionality on Borrowing Help?

Author

Listed:
  • Prince Eyi-Mensah

Abstract

Borrowers of international financial institutions (IFIs) have both interest and conditionality to deal with. Using data from the World Governance Indicators (WGI), we investigated the influence of conditionality on borrowers. By applying a (RED) dynamic panel regression method, we found compelling evidence, which supports our intuition that conditionality increases the debt burden of borrowing countries. However, this was not the case for all the indebted countries. Heavily indebted poor countries (HIPC) had some of their external commitments reduced when they agreed to implement some sets of conditionality. In light of these findings, we posit that the advocated structural reforms which is used, as a justification for prescribing conditionality does not materialize as planned. It however, erodes the capacity of borrower countries toward their debt servicing obligations. A direct consequence is their (RED) incessant need for external development assistance. Results of the study also proved robust.

Suggested Citation

  • Prince Eyi-Mensah, 2016. "Does Conditionality on Borrowing Help?," International Business Research, Canadian Center of Science and Education, vol. 9(7), pages 12-23, July.
    • Handle: RePEc:ibn:ibrjnl:v:9:y:2016:i:7:p:12-23
    as

    Download full text from publisher

    File URL: http://www.ccsenet.org/journal/index.php/ibr/article/view/58202/32748
    Download Restriction: no
    File URL: http://www.ccsenet.org/journal/index.php/ibr/article/view/58202
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jeffrey Sachs & Daniel Cohen, 1982. "LDC Borrowing with Default Risk," NBER Working Papers 0925, National Bureau of Economic Research, Inc.
    2. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 2008. "Why Is Rent-Seeking So Costly to Growth?," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 213-218, Springer.
    3. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    4. Timothy Besley & Torsten Persson, 2010. "State Capacity, Conflict, and Development," Econometrica, Econometric Society, vol. 78(1), pages 1-34, January.
    5. Kletzer, Kenneth, 2004. "Sovereign Debt, Volatility and Insurance," Santa Cruz Department of Economics, Working Paper Series qt71b785gd, Department of Economics, UC Santa Cruz.
    6. Graham Bird, 1977. "Less Developed Countries and the Reform of the International Monetary System," Development Policy Review, Overseas Development Institute, vol. 0(1), pages 68-91, April.
    7. Dani Rodrik, 1992. "The Limits of Trade Policy Reform in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 87-105, Winter.
    8. Svensson, Jakob, 2000. "When is foreign aid policy credible? Aid dependence and conditionality," Journal of Development Economics, Elsevier, vol. 61(1), pages 61-84, February.
    9. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
    10. Worrall, Tim, 1990. "Debt with potential repudiation," European Economic Review, Elsevier, vol. 34(5), pages 1099-1109, July.
    11. Mr. Pierre Dhonte, 1997. "Conditionality as an Instrument of Borrower Credibility," IMF Policy Discussion Papers 1997/002, International Monetary Fund.
    12. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    13. Joseph E. Stiglitz, 2000. "The Contributions of the Economics of Information to Twentieth Century Economics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1441-1478.
    14. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    15. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and the World Economy, pages 275-284, National Bureau of Economic Research, Inc.
    16. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    17. Marchesi, Silvia & Thomas, Jonathan P, 1999. "IMF Conditionality as a Screening Device," Economic Journal, Royal Economic Society, vol. 109(454), pages 111-125, March.
    18. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    19. Roland Vaubel, 1983. "The Moral Hazard of IMF Lending," The World Economy, Wiley Blackwell, vol. 6(3), pages 291-304, September.
    20. Dell, Sidney, 1982. "Stabilization: The political economy of overkill," World Development, Elsevier, vol. 10(8), pages 597-612, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Axel Dreher, 2009. "IMF conditionality: theory and evidence," Public Choice, Springer, vol. 141(1), pages 233-267, October.
    2. Mattia Osvaldo Picarelli, 2016. "Debt Overhang and Sovereign Debt Restructuring," Working Papers 9/16, Sapienza University of Rome, DISS.
    3. Giulio Federico, 2001. "IMF Conditionality," Economics Papers 2001-W19, Economics Group, Nuffield College, University of Oxford, revised 01 Sep 2001.
    4. Saima Nawaz & Nasir Iqbal & Muhammad Arshad Khan, 2014. "The Impact of Institutional Quality on Economic Growth: Panel Evidence," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 53(1), pages 15-31.
    5. Fafchamps, Marcel, 1996. "Sovereign debt, structural adjustment, and conditionality," Journal of Development Economics, Elsevier, vol. 50(2), pages 313-335, August.
    6. Gvozdeva, Margarita (Гвоздева, Маргарита) & Kazakova, M.V. (Казакова, М.В.) & Kiblitskaya, T.R. (Киблицкая, Т.Р.) & Lyubimov, I.L. (Любимов, И.Л.) & Nesterova, K.V. (Нестерова, К.В.), 2016. "Various Aspects of Natural Resource Wealth Effect on Economic Growth [Различные Аспекты Влияния Богатства Природными Ресурсами На Экономический Рост]," Working Papers 2045, Russian Presidential Academy of National Economy and Public Administration.
    7. Chowdhury, Shyamal K., 2004. "The effect of democracy and press freedom on corruption: an empirical test," Economics Letters, Elsevier, vol. 85(1), pages 93-101, October.
    8. Ahmet Faruk Aysan & …mer Faruk Baykal & Marie-Ange Véganzonès–Varoudakis, 2011. "The Effects of Convergence in Governance on Capital Accumulation in the Black Sea Economic Cooperation Countries," Chapters, in: Mehmet Ugur & David Sunderland (ed.), Does Economic Governance Matter?, chapter 6, Edward Elgar Publishing.
    9. Hu, Juncheng, 2021. "Do facilitation payments affect earnings management? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 68(C).
    10. Andrea Asoni, 2008. "Protection Of Property Rights And Growth As Political Equilibria," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 953-987, December.
    11. Qu, Guangjun & Sylwester, Kevin & Wang, Feng, 2016. "Anticorruption and Growth: Evidence from China," MPRA Paper 72190, University Library of Munich, Germany.
    12. Kilby, Christopher, 2005. "World Bank lending and regulation," Economic Systems, Elsevier, vol. 29(4), pages 384-407, December.
    13. Arminen, Heli & Menegaki, Angeliki N., 2019. "Corruption, climate and the energy-environment-growth nexus," Energy Economics, Elsevier, vol. 80(C), pages 621-634.
    14. Joshua Hall & John Levendis & Alexandre R. Scarcioffolo, 2020. "The Efficient Corruption Hypothesis and the Dynamics Between Economic Freedom, Corruption, and National Income," Journal of Developing Areas, Tennessee State University, College of Business, vol. 54(3), pages 161-175, July-Sept.
    15. Eslamloueyan, Karim & Jafari, Mahboubeh, 2019. "Do better institutions offset the adverse effect of a financial crisis on investment? Evidence from East Asia," Economic Modelling, Elsevier, vol. 79(C), pages 154-172.
    16. Thorvaldur Gylfason & Gylfi Zoega, 2006. "Natural Resources and Economic Growth: The Role of Investment," The World Economy, Wiley Blackwell, vol. 29(8), pages 1091-1115, August.
    17. Feng, Xunan & Johansson, Anders C. & Zhang, Tianyu, 2014. "Political participation and entrepreneurial initial public offerings in China," Journal of Comparative Economics, Elsevier, vol. 42(2), pages 269-285.
    18. Thorsten Beck & Luc Laeven, 2006. "Institution building and growth in transition economies," Journal of Economic Growth, Springer, vol. 11(2), pages 157-186, June.
    19. Ahlin, Christian & Pang, Jiaren, 2008. "Are financial development and corruption control substitutes in promoting growth?," Journal of Development Economics, Elsevier, vol. 86(2), pages 414-433, June.
    20. Jorra, Markus, 2012. "The effect of IMF lending on the probability of sovereign debt crises," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 709-725.

    More about this item

    Keywords

    external commitment; conditionality; IFI and institutions;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibn:ibrjnl:v:9:y:2016:i:7:p:12-23. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Canadian Center of Science and Education (email available below). General contact details of provider: https://edirc.repec.org/data/cepflch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.