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On the Conditional Effects of IMF Loan Program Participation on Output Growth

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  • Binder, Michael
  • Bluhm, Marcel

Abstract

The empirical evidence currently available in the literature regarding the effects of a country's IMF program participation on its output growth is rather inconclusive. In this paper we propose and estimate a panel data sample selection model featuring state dependence. As in this model the output growth effects of program participation can be conditional on the realization of a state variable (conditional pooling), our framework may reconcile previous empirical evidence based on models without state-dependent effects. We find that the effects of IMF program participation on output growth vary systematically with an index reflecting a country's institutional record, and that output growth effects of program participation are significantly positive only if the program participation is coupled with sufficient improvement of the institutional record.

Suggested Citation

  • Binder, Michael & Bluhm, Marcel, 2014. "On the Conditional Effects of IMF Loan Program Participation on Output Growth," IMFS Working Paper Series 78, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    • Handle: RePEc:zbw:imfswp:78
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    References listed on IDEAS

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    1. Vreeland,James Raymond, 2003. "The IMF and Economic Development," Cambridge Books, Cambridge University Press, number 9780521016957, October.
    2. Hutchison, Michael M. & Noy, Ilan, 2003. "Macroeconomic effects of IMF-sponsored programs in Latin America: output costs, program recidivism and the vicious cycle of failed stabilizations," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 991-1014, December.
    3. Binder, Michael & Hsiao, Cheng & Pesaran, M. Hashem, 2005. "Estimation And Inference In Short Panel Vector Autoregressions With Unit Roots And Cointegration," Econometric Theory, Cambridge University Press, vol. 21(4), pages 795-837, August.
    4. Dreher, Axel, 2006. "IMF and economic growth: The effects of programs, loans, and compliance with conditionality," World Development, Elsevier, vol. 34(5), pages 769-788, May.
    5. Semykina, Anastasia & Wooldridge, Jeffrey M., 2010. "Estimating panel data models in the presence of endogeneity and selection," Journal of Econometrics, Elsevier, vol. 157(2), pages 375-380, August.
    6. Michael M. Hutchison, 2004. "Selection Bias and the Output Costs of IMF Programs," EPRU Working Paper Series 04-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    7. Reynaud, Julien & Vauday, Julien, 2008. "IMF lending and geopolitics," Working Paper Series 965, European Central Bank.
    8. Vella, Francis & Verbeek, Marno, 1999. "Two-step estimation of panel data models with censored endogenous variables and selection bias," Journal of Econometrics, Elsevier, vol. 90(2), pages 239-263, June.
    9. Barro, Robert J. & Lee, Jong-Wha, 2005. "IMF programs: Who is chosen and what are the effects?," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1245-1269, October.
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    12. Dreher, Axel & Sturm, Jan-Egbert & Vreeland, James Raymond, 2009. "Global horse trading: IMF loans for votes in the United Nations Security Council," European Economic Review, Elsevier, vol. 53(7), pages 742-757, October.
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    Cited by:

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    2. John B. Taylor & Volker Wieland, 2016. "Finding the Equilibrium Real Interest Rate in a Fog of Policy Deviations," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 51(3), pages 147-154, July.
    3. Wieland, Volker & Wolters, Maik, 2014. "Is there a threat of self-reinforcing deflation in the euro area? A view through the lens of the Phillips curve," Kiel Policy Brief 79, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Conditional Pooling; IMF Program Participation; Output Growth; Panel Sample Selection Models;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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