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Adverse selection and growth under IMF programs

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  • Muhammet Bas
  • Randall Stone

Abstract

The dominant approach to studying the effects of IMF programs has emphasized moral hazard, but we find that adverse selection has more impressive effects. We propose a novel strategic selection model to study the growth effects of IMF programs, which allows for the possibility of adverse selection. We find that adverse selection occurs: the countries that are most interested in participating in IMF programs are the least likely to have favorable growth outcomes. Controlling for this selection effect, we find that countries benefit from IMF programs on average in terms of higher growth rates, but that some countries benefit from participation, while others are harmed. Moral hazard predicts that long-term users of Fund resources benefit least from participating in programs, while adverse selection predicts the opposite. Contrary to previous findings, we find that IMF programs have more successful growth performance among long-term users than among short-term users. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Muhammet Bas & Randall Stone, 2014. "Adverse selection and growth under IMF programs," The Review of International Organizations, Springer, vol. 9(1), pages 1-28, March.
    • Handle: RePEc:spr:revint:v:9:y:2014:i:1:p:1-28
    DOI: 10.1007/s11558-013-9173-1
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    More about this item

    Keywords

    IMF; Growth; Strategic statistical models; C3; F3; Q4;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • F3 - International Economics - - International Finance
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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