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Agency and Communication in IMF Conditional Lending: Theory and Empirical Evidence

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  • Silvia Marchesi
  • Laura Sabani
  • Axel Dreher

Abstract

We focus on the role that the transmission of information between a multilateral (the IMF) and a country has for the optimal design of conditional reforms. Our model predicts that when agency problems are especially severe, and/or IMF information is valuable, a centralized control is indeed optimal. To the contrary, when local knowledge is more important than the agency bias we expect delegation to dominate. Controlling for economic and political factors, our empirical tests show that the number of IMF conditions is lower in countries with a greater social complexity, while it increases with the bias of the countries’ authorities, openness, and transparency, consistently with the theory.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2574.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2574

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Keywords: IMF conditionality; delegation; communication; panel data;

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