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Vested Interests in a Positive Theory of IFI Conditionality

Author

Listed:
  • Mr. Alex Mourmouras
  • Mr. Wolfgang Mayer

Abstract

Understanding of the domestic political environment is key to building broad country ownership and the successful implementation of reform programs supported by international financial institutions (IFIs). But recipient countries are not unitary actors: policymakers are influenced by special interest groups (SIGs) opposing reforms, leading to distorted policies. Using a new model of the financial relations between a benevolent IFI and a sovereign borrower subject to influence by SIGs, we analyze the determinants and welfare impacts of conditional and unconditional assistance. While conditionality may raise IFI welfare, economize on the amount of assistance, and lower domestic distortions, it may not always raise recipient country welfare. Recipient governments are always better off if assistance is provided unconditionally.

Suggested Citation

  • Mr. Alex Mourmouras & Mr. Wolfgang Mayer, 2002. "Vested Interests in a Positive Theory of IFI Conditionality," IMF Working Papers 2002/073, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2002/073
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    Citations

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    Cited by:

    1. Mr. Alex Mourmouras & Mr. Peter Rangazas, 2004. "Conditional Lending Under Altruism," IMF Working Papers 2004/100, International Monetary Fund.
    2. Silvia Marchesi & Laura Sabani & Axel Dreher, 2009. "Agency and communicaton in IMF conditional lending: Theory and empirical evidence," KOF Working papers 09-218, KOF Swiss Economic Institute, ETH Zurich.
    3. Alberto Paloni & Maurizio Zanardi, 2006. "Development Policy Lending, Conditionality, and Ownership: A Dynamic Agency Model Perspective," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 253-266, May.
    4. Richard M. Auty, 2006. "Patterns of Rent-Extraction and Deployment in Developing Countries: Implications for Governance, Economic Policy and Performance," WIDER Working Paper Series RP2006-16, World Institute for Development Economic Research (UNU-WIDER).
    5. Arellano, Cristina & Bulír, Ales & Lane, Timothy & Lipschitz, Leslie, 2009. "The dynamic implications of foreign aid and its variability," Journal of Development Economics, Elsevier, vol. 88(1), pages 87-102, January.
    6. 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.
    7. Tito Cordella & Giovanni Dell'Aricca, 2002. "Limits of Conditionality in Poverty Reduction Programs," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 68-86.
    8. Carsten Hefeker & Katharina Michaelowa, 2005. "Can process conditionality enhance aid effectiveness?," Public Choice, Springer, vol. 122(1), pages 159-175, January.
    9. Graham Bird & Wolfgang Mayer & Alex Mourmouras, 2005. "The Viability of Economic Reform Programs Supported by the International Financial Institutions," School of Economics Discussion Papers 0605, School of Economics, University of Surrey.
    10. Drazen, Allan, 2002. "Conditionality and Ownership in IMF Lending: A Political Economy Approach," CEPR Discussion Papers 3562, C.E.P.R. Discussion Papers.
    11. Mr. Wolfgang Mayer & Mr. Alex Mourmouras, 2004. "The Political Economy of Conditional and Unconditional Foreign Assistance: Grants vs. Loan Rollovers," IMF Working Papers 2004/038, International Monetary Fund.
    12. Mariarosaria Agostino, 2007. "World Bank Trade Adjustment Loans and Export Policy Distortions," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 10(2), pages 143-162.
    13. Mr. James M. Boughton & Mr. Alex Mourmouras, 2002. "Is Policy Ownership An Operational Concept?," IMF Working Papers 2002/072, International Monetary Fund.
    14. Wolfgang Mayer & Alexandros Mourmouras, 2005. "The Political Economy of IMF Conditionality: A Common Agency Model," Review of Development Economics, Wiley Blackwell, vol. 9(4), pages 449-466, November.
    15. Spiros Bougheas & Indraneel Dasgupta & Oliver Morrissey, 2007. "Tough love or unconditional charity?," Oxford Economic Papers, Oxford University Press, vol. 59(4), pages 561-582, October.
    16. Candel-Sánchez Francisco, 2014. "Incentives for Conditional Aid Effectiveness," Journal of Globalization and Development, De Gruyter, vol. 5(1), pages 1-28, June.
    17. Carsten Hefeker, 2006. "Project Aid or Budget Aid? The Interests of Governments and Financial Institutions," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 241-252, May.
    18. Mr. Alex Mourmouras & Anna Ivanova & Mr. George C Anayiotos & Mr. Wolfgang Mayer, 2003. "What Determines the Implementation of IMF-Supported Programs?," IMF Working Papers 2003/008, International Monetary Fund.
    19. Jan‐Egbert Sturm & Helge Berger & Jakob De Haan, 2005. "Which Variables Explain Decisions On Imf Credit? An Extreme Bounds Analysis," Economics and Politics, Wiley Blackwell, vol. 17(2), pages 177-213, July.
    20. Weithoner, Thomas, 2006. "How can IMF policy eliminate country moral hazard and account for externalities?," Journal of International Money and Finance, Elsevier, vol. 25(8), pages 1257-1276, December.
    21. Wolfgang Mayer & Alex Mourmouras, 2008. "IMF conditionality: An approach based on the theory of special interest politics," The Review of International Organizations, Springer, vol. 3(2), pages 105-121, June.
    22. Mr. Jeromin Zettelmeyer & Mr. Jonathan David Ostry & Mr. Olivier D Jeanne, 2008. "A Theory of International Crisis Lending and IMF Conditionality," IMF Working Papers 2008/236, International Monetary Fund.
    23. Mariarosaria Agostino, 2007. "World Bank Trade Adjustment Loans and Export Policy Distortions," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 10(2), pages 143-162.

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