Institutions, Program Implementation, and Macroeconomic Performance

Abstract

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper assesses empirically the links among a country's institutions and political environment, its implementation of IMF-supported programs, and macroeconomic performance in a sample of 197 programs approved between 1992 and 2002. We find that a stronger institutional and political environment is associated with better macroeconomic outcomes, especially at longer time horizons. This direct beneficial effect of institutions on macroeconomic outcomes is in addition to their indirect effect through better program implementation. We also find that program implementation exerts an independent influence on macroeconomic outcomes, especially over shorter time horizons of up to two years. Better-implemented programs are associated with lower inflation and with initially weaker but ultimately stronger external and fiscal outcomes, but with a statistically insignificant impact on economic growth.

Do lack of transparency and enforcement undermine international risk-sharing?

“…This aspect of our analysis provides a rationale for the existence of multilateral organizations and formalizes a claim by Krueger (1997, p. 21) who notes that "if one can demonstrate that there are Pareto-superior outcomes or sufficiently large externalities, a clear rationale for (multilateral) institutions could result." Result (iii) also shows that a better outcome is achieved when the agency chooses e i , which is consistent with Nsouli et al (2004).…”

“…22 Some have argued that the IMF should limit the scope of its operations and return to its original purpose: short-term emergency lending (cf., IFIAC Report 2000). 23 Others argue that the lack of transparency among member countries undermines the operations of the IMF, and therefore the Fund's mandate should be expanded to cover issues relating to governance, accountability and quality of institutions (cf., Frankel 2003;Nsouli et al 2004). We present an analytical framework to study the extent to which lack of transparency can compromise risk-sharing, when participation by sovereign countries cannot be compelled and they can renege on ex ante agreements (i.e., the problem is constrained by voluntary participation and limited enforcement).…”

The International Monetary Fund: A review of the recent evidence

“…Along similar lines, Simmons (2000a, b) finds that countries with weakly established rule of law were most likely to renege on Article VIII commitments. Democracy appears to be associated with successful implementation, and authoritarian or weakly democratic regimes are more likely to experience program interruptions (Stone 2002and Nsouli et al 2006, although PopEleches (2007) finds evidence for a reversed effect. In a similar contradiction, Dreher (2003) finds that democratic states have a lower credit disbursementcommitment ratio, while Joyce (2006) finds the opposite.…”

Turkey and the IMF: A case study in the political economy of policy implementation

“…1 The econometric evidence also suggests that the IMF can affect implementation through the amount of financial assistance it stands ready to provide (Killick 1995;Nsouli et al 2004;Arpac et al 2008).…”