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The Political Economy of IMF Conditionality: A Common Agency Model

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  • Wolfgang Mayer
  • Alexandros Mourmouras
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    Abstract

    The paper models the relationship between an aid-providing international financial institution (IFI) and an aid-receiving government whose economic policy choices are influenced by a domestic interest group. Two assistance schemes are evaluated: conditional aid in which the IFI makes assistance contingent on less- distorting economic policies and unconditional aid which is provided without such conditions. Conditional aid is shown to raise welfare of the receiving country and the world as a whole relative to unconditional aid. The paper also examines how conditional and unconditional aid schemes are influenced by the IFI's opportunity cost of providing assistance and the receiving government's political dependence on a domestic interest group. Copyright Blackwell Publishing Ltd 2005.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Review of Development Economics.

    Volume (Year): 9 (2005)
    Issue (Month): 4 (November)
    Pages: 449-466

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    Handle: RePEc:bla:rdevec:v:9:y:2005:i:4:p:449-466

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=1363-6669

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    Cited by:
    1. James Hollyer, 2010. "Conditionality, compliance, and domestic interests: State capture and EU accession policy," The Review of International Organizations, Springer, vol. 5(4), pages 387-431, December.
    2. Silva Marchesi & Laura Sabani & Axel Dreher, 2009. "Agency and communication in IMF conditional lending: theory and empirical evidence," Ibero America Institute for Econ. Research (IAI) Discussion Papers 183, Ibero-America Institute for Economic Research.
    3. Oscar Calvo-Gonzalez, 2007. "Ownership and conditionality in IMF-supported programs: Back to Per Jacobsson’s time," The Review of International Organizations, Springer, vol. 2(4), pages 329-343, December.
    4. Wolfgang Mayer & Alex Mourmouras, 2005. "On the Viability of Conditional Assistance Programs," IMF Working Papers 05/121, International Monetary Fund.

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