Do IMF Programmes Have a Catalytic Effect on Other International Capital Flows?

Bird, Graham; Rowlands, Dane

doi:10.1080/1360081022000012671

Cited by 87 publications

(86 citation statements)

References 27 publications

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“…For an excellent summary of this literature see Bird and Rowlands (2002). as a (subsidized) income insurance against adverse shocks (Vaubel 1983).…”

Section: Channels For the Impact Of The Imf On Economic Growthmentioning

confidence: 99%

IMF and economic growth: The effects of programs, loans, and compliance with conditionality

2006

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractIn theory, the IMF could influence economic growth via several channels, among them advice to policy makers, money disbursed under its programs, and its conditionality. This paper tries to disentangle those effects empirically. Using panel data for 98 countries over the period 1970-2000 it analyzes whether IMF involvement influences economic growth in program countries. Consistent with the results of previous studies, it is shown that IMF programs reduce growth rates when their endogeneity is accounted for. There is only weak evidence that compliance with conditionality mitigates this negative effect. IMF loans have no statistically significant impact.

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“…For an excellent summary of this literature see Bird and Rowlands (2002). as a (subsidized) income insurance against adverse shocks (Vaubel 1983).…”

Section: Channels For the Impact Of The Imf On Economic Growthmentioning

confidence: 99%

IMF and economic growth: The effects of programs, loans, and compliance with conditionality

2006

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“…role has led the Fund to impose excessively contractionary policies (Birds and Rowlands, 2002). So far, the literature has focused on the current account and speci…c categories of net capital ‡ows.…”

Section: Catalytic Imf Lending: a Review Of The Literaturementioning

confidence: 99%

“…Along these lines, Forbes and Warnock (2012) and Broner et al (2013) show that resident and foreign investors' reaction functions are distinct. 2 These papers demonstrate that gross capital ‡ows are very large and volatile, especially relative to net capital ‡ows. They also shed light on the sources of ‡uctuations driving capital ‡ows by proving that crises can a¤ect domestic and foreign agents asymmetrically.…”

Section: Introductionmentioning

confidence: 99%

“…On the theoretical front, Corsetti et al, (2006) and others have shown that IMF lending has the potential to catalyze foreign capital in ‡ows But disconcertingly, from an empirical perspective, many studies cast doubt on the existence of any such positive e¤ect. Critics have seized upon this lack of empirical evidence to argue that Fund policies are too restrictive and generate moral hazard on both debtors and creditors (Birds and Rowlands, 2002). 1 In parallel, the literature on capital ‡ows has recently turned its focus to the gross components of the …nancial account.…”

Section: Introductionmentioning

confidence: 99%

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Catalytic IMF? A Gross Flows Approach

Erce¹,

Riera‐Crichton

2015

gwp

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The financial assistance the International Monetary Fund (IMF) provides is assumed to catalyze fresh investment. Such a catalytic effect has, however, proven empirically elusive. This paper deviates from the standard approach based on the net capital inflow to study instead the IMF's catalytic role in the context of gross capital flows. Using fixed-effects regressions, instrumental variables and local projection methods, we find significant differences in how resident and foreign investors react to IMF programs as well as in inward and outward flows. While IMF lending does not catalyze foreign capital, it does affect the behavior of resident investors, who are both less likely to place their savings abroad and more likely to repatriate their foreign assets. As domestic banks' flows drive this effect, we conclude that IMF catalysis is "a banking story". In comparing the effects across crisis types, we find that the effect of the IMF on resident investors is strongest during sovereign defaults, and that it exerts the least effect on foreign investors during bank crises. AbstractThe …nancial assistance the International Monetary Fund (IMF) provides is assumed to catalyze fresh investment. Such a catalytic e¤ect has, however, proven empirically elusive. This paper deviates from the standard approach based on the net capital in ‡ow to study instead the IMF's catalytic role in the context of gross capital ‡ows. Using …xed-e¤ects regressions, instrumental variables and local projection methods, we …nd signi…cant di¤erences in how resident and foreign investors react to IMF programs as well as in inward and outward ‡ows. While IMF lending does not catalyze foreign capital, it does a¤ect the behavior of resident investors, who are both less likely to place their savings abroad and more likely to repatriate their foreign assets. As domestic banks' ‡ows drive this e¤ect, we conclude that IMF catalysis is "a banking story". In comparing the e¤ects across crisis types, we …nd that the e¤ect of the IMF on resident investors is strongest during sovereign defaults, and that it exerts the least e¤ect on foreign investors during bank crises.

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“…The recent quantitative literature yields a mixed verdict, with several studies finding that IMF lending does not catalyze private capital flows (Bird and Rowlands, 2002;Eichengreen, Gupta and Mody, 2006;Jensen, 2004), and others finding that it does under certain conditions (Mody and Saravia, 2006;Bauer, Cruz and Graham, 2012). It appears that in some cases, rather than representing a "seal of approval," an IMF program signals to markets that a crisis is looming.…”

Section: Moral Hazard and Adverse Selectionmentioning

confidence: 99%

Adverse selection and growth under IMF programs

Bas

Stone

2013

Rev Int Organ

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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.

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Do IMF Programmes Have a Catalytic Effect on Other International Capital Flows?

Cited by 87 publications

References 27 publications

IMF and economic growth: The effects of programs, loans, and compliance with conditionality

IMF and economic growth: The effects of programs, loans, and compliance with conditionality

Catalytic IMF? A Gross Flows Approach

Adverse selection and growth under IMF programs

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