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On US politics and IMF Lending

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Author Info

  • Thomas Barnebeck Andersen

    (Institute of Economics, University of Copenhagen)

  • Thomas Harr

    (Institute of Economics, University of Copenhagen)

  • Finn Tarp

    (Institute of Economics, University of Copenhagen)

Abstract

The political factors, which shape IMF lending to LDCs, have attracted much attention. The same goes for the role and influence of the US. However, formal modelling is scant. In this paper, we assume that the US is principal within the IMF and seeks to maximize its impact on the policy stance of debtor countries. We derive the optimal loan allocation mechanism, and test the hypothesis that the probability of an IMF loan is increasing in the amount of political concessions countries make. A political concession is defined as the distance between a country’s bliss point and its actual policy stance measured relative to the US. We propose a bliss-point proxy and test our hypothesis in a sample of 68 countries during the period 1986-94. There is support for our hypothesis in the data. Finally, we show that omitting bliss points may lead to endogeneity bias in empirical work.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 04-11.

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Length: 30 pages
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:kud:kuiedp:0411

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Keywords: IMF lending; political factors;

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References

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  1. Robert J Barro & Jong-Wha Lee, 2003. "IMF Programs: Who Is Chosen and What Are the Effects?," Departmental Working Papers 2003-09, The Australian National University, Arndt-Corden Department of Economics.
  2. Gould, Erica R., 2003. "Money Talks: Supplementary Financiers and International Monetary Fund Conditionality," International Organization, Cambridge University Press, vol. 57(03), pages 551-586, June.
  3. Graham Bird & Dane Rowlands, 2001. "IMF lending: how is it affected by economic, political and institutional factors?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 4(3), pages 243-270.
  4. Graham Bird & Dane Rowlands, 2003. "Political Economy Influences Within the Life-Cycle of IMF Programmes," The World Economy, Wiley Blackwell, vol. 26(9), pages 1255-1278, 09.
  5. Laffont, Jean-Jacques & Robert, Jacques, 1996. "Optimal auction with financially constrained buyers," Economics Letters, Elsevier, vol. 52(2), pages 181-186, August.
  6. Knight, Malcolm & Santaella, Julio A., 1997. "Economic determinants of IMF financial arrangements," Journal of Development Economics, Elsevier, vol. 54(2), pages 405-436, December.
  7. Bird, Graham, 1996. "Borrowing from the IMF: The policy implications of recent empirical research," World Development, Elsevier, vol. 24(11), pages 1753-1760, November.
  8. Maskin, Eric S., 2000. "Auctions, development, and privatization: Efficient auctions with liquidity-constrained buyers," European Economic Review, Elsevier, vol. 44(4-6), pages 667-681, May.
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