IMF lending: how is it affected by economic, political and institutional factors?

In seeking to understand IMF lending early large sample econometric studies tended to focus on economic factors. Political and institutional influences were often deemed to be reflected in the frequently large residual. At the same time increasing anecdotal evidence was being amassed to suggest that political factors were indeed important. However, more recent studies have claimed that, by using superior estimating techniques, a satisfactory explanation of Fund lending can be provided without needing to include political and institutional factors, which are in any case difficult to measure and model. This study shows that there is large sample evidence supporting the importance of some of these variables, though their contribution to predicting the pattern of IMF agreements is minimal. It goes on to discuss some of the implications of this for the Fund as the world's premier international financial institution. The research upon which this paper is based was supported by the UK Department for International Development (DFID). While this support is gratefully acknowledged, the views and opinions expressed are those of the authors alone. Thanks to Chris Worswick and two anonymous referees for comments, and Connie Tulus and Helgi Maki for research assistance.