On the Determinants and Outcomes of IMF Loans: A Political Economy Approach

The main objective in this paper is to empirically analyze the economic and political determinants of IMF lending in low- and middle-income countries. Compared to the existing literature, our main contribution is twofold. First, using the IMF Monitoring of Fund Agreements (MONA) database, we merge domestic political and institutional factors with international political economy factors to analyze IMF lending determinants. Second, we use the predicted values of determinants of IMF lending as instruments to explain the consequences of this lending on economic outcomes. Our main findings show that economic and political proximity to the IMF major shareholders matter for the likelihood of obtaining an IMF non-concessional loan. Furthermore, most of the loans seem to exert either an insignificant or a negative effect on the trend component of GDP, confirming that such loans can stabilize the economies in the short term without improving the long run steady growth. Yet, democratic regimes compared to autocratic ones improve the effects of these loans on economic growth and other outcomes (such as the current account and inflation). By contrast, key physical and human capital variables do not seem to be significantly affected by such loans.