IMF programs: Who is chosen and what are the effects?

Robert J. Barro, Jong-Wha Lee

Research output: Contribution to journalArticle

207 Citations (Scopus)

Abstract

IMF loans react to economic conditions but are also sensitive to political-economy variables. Loans tend to be larger and more frequent when a country has a bigger quota and more professional staff at the IMF and when a country is more connected politically and economically to the United States and major European countries. These results are of considerable interest for their own sake. More importantly for present purposes, the results provide instrumental variables for estimating the effects of IMF loan programs on economic growth and other variables. This instrumental estimation allows us to sort out the economic effects of the loan programs from the responses of IMF lending to economic conditions. The estimates show that a higher IMF loan-participation rate reduces economic growth. IMF lending does not have significant effects on investment, inflation, government consumption, and international openness. However, IMF loan participation has small negative effects on democracy and the rule of law. The reduction in the rule of law implies an additional, indirect channel whereby IMF lending reduces economic growth.

Original languageEnglish
Pages (from-to)1245-1269
Number of pages25
JournalJournal of Monetary Economics
Volume52
Issue number7
DOIs
Publication statusPublished - 2005 Oct 1

Fingerprint

Loans
IMF programs
Economic growth
Lending
Rule of law
Economic conditions
Inflation
Economic effect
Democracy
Openness
Participation rate
Government consumption
Staff
European countries
Political economy
Participation
Instrumental variables

Keywords

  • Economic growth
  • IMF lending
  • Instruments
  • Political economy

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

IMF programs : Who is chosen and what are the effects? / Barro, Robert J.; Lee, Jong-Wha.

In: Journal of Monetary Economics, Vol. 52, No. 7, 01.10.2005, p. 1245-1269.

Research output: Contribution to journalArticle

@article{fa3099eae4d14ba4883f0c9f818d7412,
title = "IMF programs: Who is chosen and what are the effects?",
abstract = "IMF loans react to economic conditions but are also sensitive to political-economy variables. Loans tend to be larger and more frequent when a country has a bigger quota and more professional staff at the IMF and when a country is more connected politically and economically to the United States and major European countries. These results are of considerable interest for their own sake. More importantly for present purposes, the results provide instrumental variables for estimating the effects of IMF loan programs on economic growth and other variables. This instrumental estimation allows us to sort out the economic effects of the loan programs from the responses of IMF lending to economic conditions. The estimates show that a higher IMF loan-participation rate reduces economic growth. IMF lending does not have significant effects on investment, inflation, government consumption, and international openness. However, IMF loan participation has small negative effects on democracy and the rule of law. The reduction in the rule of law implies an additional, indirect channel whereby IMF lending reduces economic growth.",
keywords = "Economic growth, IMF lending, Instruments, Political economy",
author = "Barro, {Robert J.} and Jong-Wha Lee",
year = "2005",
month = "10",
day = "1",
doi = "10.1016/j.jmoneco.2005.04.003",
language = "English",
volume = "52",
pages = "1245--1269",
journal = "Journal of Monetary Economics",
issn = "0304-3932",
publisher = "Elsevier",
number = "7",

}

TY - JOUR

T1 - IMF programs

T2 - Who is chosen and what are the effects?

AU - Barro, Robert J.

AU - Lee, Jong-Wha

PY - 2005/10/1

Y1 - 2005/10/1

N2 - IMF loans react to economic conditions but are also sensitive to political-economy variables. Loans tend to be larger and more frequent when a country has a bigger quota and more professional staff at the IMF and when a country is more connected politically and economically to the United States and major European countries. These results are of considerable interest for their own sake. More importantly for present purposes, the results provide instrumental variables for estimating the effects of IMF loan programs on economic growth and other variables. This instrumental estimation allows us to sort out the economic effects of the loan programs from the responses of IMF lending to economic conditions. The estimates show that a higher IMF loan-participation rate reduces economic growth. IMF lending does not have significant effects on investment, inflation, government consumption, and international openness. However, IMF loan participation has small negative effects on democracy and the rule of law. The reduction in the rule of law implies an additional, indirect channel whereby IMF lending reduces economic growth.

AB - IMF loans react to economic conditions but are also sensitive to political-economy variables. Loans tend to be larger and more frequent when a country has a bigger quota and more professional staff at the IMF and when a country is more connected politically and economically to the United States and major European countries. These results are of considerable interest for their own sake. More importantly for present purposes, the results provide instrumental variables for estimating the effects of IMF loan programs on economic growth and other variables. This instrumental estimation allows us to sort out the economic effects of the loan programs from the responses of IMF lending to economic conditions. The estimates show that a higher IMF loan-participation rate reduces economic growth. IMF lending does not have significant effects on investment, inflation, government consumption, and international openness. However, IMF loan participation has small negative effects on democracy and the rule of law. The reduction in the rule of law implies an additional, indirect channel whereby IMF lending reduces economic growth.

KW - Economic growth

KW - IMF lending

KW - Instruments

KW - Political economy

UR - http://www.scopus.com/inward/record.url?scp=28244436698&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=28244436698&partnerID=8YFLogxK

U2 - 10.1016/j.jmoneco.2005.04.003

DO - 10.1016/j.jmoneco.2005.04.003

M3 - Article

AN - SCOPUS:28244436698

VL - 52

SP - 1245

EP - 1269

JO - Journal of Monetary Economics

JF - Journal of Monetary Economics

SN - 0304-3932

IS - 7

ER -