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Imf and economic growth – the effects of programs, loans and compliance with conditionality. Content:. Introduction Implementation of IMF Conditionality IMF and Economic Growth Channels For the Impact of the IMF on Economic Growth Method and Data Empirical Estimates Conclusion.

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Presentation Transcript
content
Content:
  • Introduction
  • Implementation of IMF Conditionality
  • IMF and Economic Growth
  • Channels For the Impact of the IMF on Economic Growth
  • Method and Data
  • Empirical Estimates
  • Conclusion
slide3

IMF channels to influcence economic growth, among others :

  • Money disbursed under its programs
  • Advice to policy makers
  • Conoditionality
introduction
INTRODUCTION
  • author tries to separate their effects
  • using panel data for 98 countries, period between 1970.-2000.
  • Analysis- if the involvement of IMF influences economic growth in program counties
implement at ion of imf conditionality
IMPLEMENTATION OF IMF CONDITIONALITY
  • measuring is not straightforward
  • Numerous experts conducted studies on implementation of conditions
slide6

Beveridge and Kelly 1980.

  • Out of 105 counties which implemented upper credit-tranche programs, only 60% achieved the target for the overall fiscal deficit and 54% complied with credit ceiling
slide7

Haggard 1985.

  • Extremely low rates of compliance with contitions under the EFF during 1974.-84.
  • Of the 30 cases studied, 16 were cancelled and 8 more were not implemented in their original form
slide8

problem with interruption

  • Mecagni 1999.
  • evaluated 36 countires
  • 28 of them interrupted their programs 51 times in total ( 17 had more than one interruption)
  • 33 interuptions were caused by slippage on conditionality
slide9

Mercer, Blackman and Unigovskaya

  • Compliance in countries in trasition to market economies
  • used data on comliance with conditionality provided by IMF itself
  • of the 33 countries, only 17 implemented more than 50% of the structural benchmarks included in their program
slide10

the worst impementation rates were found for conditions related with

  • Privatization
  • Social security system
  • Public enterprise reforms
  • Program implementation depends primarly on political constellation in the borrower country ( Ivanova, Mayer, Mourmouras and Anayiotos, 2003)
slide11

Killick- employed IMF loans that were agreed but left undrawn at program expiration as an indicator of preformance under a program

  • Joyce – duration of political regime, trade openess and degree of politican openess

are significant for program implementation

imf and economic growth
IMF AND ECONOMIC GROWTH
  • economic growth as policy objective
  • three methods of evaluation if IMF influences economic growth
  • Befor and after
  • With-without
  • Regression analysis
slide13

The existing studies do not provide a clear answer as to whether IMF programs affect growth and if so, whether they increase or reduce growth rate

  • non of them adequately separates the effects of the IMF’s advice and compliance with conditionality from money disbursed
channels for the impact of the imf on economic growth
CHANNELS FOR THE IMPACT OF THE IMF ON ECONOMIC GROWTH
  • 1. money

- governments persue inappropriate policies longer

- moral hazard hypotesis

  • 2. conditions

- from one side : inappropriate conditons which reduce growth

- from other side : frequent interruptions and non-compliance->no effect on economic outcome

  • 3. Advice – influence in a log run
method and data
METHOD AND DATA
  • the regression is a pooled time-series crosssection analysis
  • the data are averages over five years
  • the analysis covers the time period 1970–2000 and extends to 98 developing countries
  • the dependent variable is the average five year growth rate of per capita GDP
  • a dummy for each country and each of the five-year periods is included in all regressions
method and data1
METHOD AND DATA
  • the analysis should cover only thosearrangements that were in effect over much ofthe year in question
  • sincethe dataarefive-yearaverages,the participationindex varies continuously betweenzero and one, measuring the fraction of eachperiod that a country operates under an IMFprogram
  • following Barro and Lee(2005), were included only Stand-By and ExtendedFund Facility arrangements
variable estimate
VARIABLE ESTIMATE
  • one instrument typically employedin the literature is a variable measuringvoting in the UN General Assembly
  • author constructed a variable reflecting whetherthe borrowing country votes in line with theaverage of the G7 countries
  • G7countries’votesareweightedwiththeir quota in the Fund to take their votingpower into account
  • votes in agreement withthe G7 are coded as 1 and votes in disagreementas 0—the resulting numbers are thendivided by the total number of votes in eachyear
  • in addition to the UN voting variable,potential instruments are derived from thegeneral-to-specific approach described above.
empirical estimates4
EMPIRICAL ESTIMATES
  • in summary, there is considerable evidencethat participation in IMF programs reduceseconomic growth
  • there is also evidence thatcompliance with conditionality reduces thisnegative effect, although the overall impact remainssubstantially negative
  • the negative result would lead to the conclusionthat the IMF’s concept of economic reformsis flawed and in the longer run, even
  • whenconditionalityisnotimplemented,reducesgrowth
  • technical explanation:theinstrumentsemployedmightnotadequatelycapture the underlying crises, so that the effectof the IMF is outweighed by the effects of thecrises.
  • the proxies for compliancemight be too crude to actually capture trueimplementation of conditionality
conclusion
CONCLUSION
  • there is some evidence thatcompliance with IMF conditionality does increase
  • growth rates once sample selection istaken into account
  • the effect ofcompliance is quantitatively small comparedto the overall reduction
  • the results have implications for the designof conditionality
  • The empirical results have shown that the impact of compliance with conditionality on growth is quantitatively small
  • In order to lend more effectively, it would therefore be most important for the IMF to detect factors influencing ownership and thus the willingness to reform
  • arguably, if the IMF would support reform-minded governments, its loans might make a difference (even if its advice might not)