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Why Do Countries Request Assistance from International Monetary Fund? An Empirical Analysis

Author

Listed:
  • Ifrah Siddique

    (Department of Economics, University of the Punjab, Lahore 54590, Pakistan)

  • Muhammad Azmat Hayat

    (Department of Economics, University of the Punjab, Lahore 54590, Pakistan)

  • Muhammad Zahid Naeem

    (School of Business and Economics, University of Brunei Darussalam, Darussalam BE1410, Brunei)

  • Abdullah Ejaz

    (Accounting Department, Bredin College of Business and Health Care, Edmonton, AB T5J 0K1, Canada)

  • Cristi Spulbar

    (Faculty of Economics and Business Administration, University of Craiova, 200585 Craiova, Romania)

  • Ramona Birau

    (Faculty of Education Science, Law and Public Administration, Constantin Brancusi University of Targu Jiu, 210135 Târgu Jiu, Romania)

  • Toni Calugaru

    (Faculty of Economics and Business Administration, University of Craiova, 200585 Craiova, Romania)

Abstract

This paper investigates the determinants behind persistent and prolonged stays under the International Monetary Fund (IMF) program and its effectiveness, using panel data consisting of 70 countries that have requested IMF support multiple times, during the period 1980–2018. By employing panel survival analysis, we conclude that weak economic indicators, e.g., current account deficit, high debt service ratio, low GDP, are the main reasons that force a country to reach out to the IMF support program. We further extend our analysis to investigate the effectiveness of the IMF program by dividing our sample into two groups, based on income level. To overcome the issue of endogeneity, we implement the panel instrumental two-stage least squares (2SLS) fixed-effect model. In the light of our analysis, we find a contemporaneous positive impact of the IMF fund program on the economic growth of upper middle-income countries, while, for low-income countries, its contemporaneous impact is insignificant, but becomes visible over time.

Suggested Citation

  • Ifrah Siddique & Muhammad Azmat Hayat & Muhammad Zahid Naeem & Abdullah Ejaz & Cristi Spulbar & Ramona Birau & Toni Calugaru, 2021. "Why Do Countries Request Assistance from International Monetary Fund? An Empirical Analysis," JRFM, MDPI, vol. 14(3), pages 1-19, March.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:3:p:98-:d:508424
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    References listed on IDEAS

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    2. Agbloyor, Elikplimi Komla & Pan, Lei & Dwumfour, Richard Adjei & Gyeke-Dako, Agyapomaa, 2023. "We are back again! What can artificial intelligence and machine learning models tell us about why countries knock at the door of the IMF?," Finance Research Letters, Elsevier, vol. 57(C).

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