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On US politics and IMF lending

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  • Andersen, Thomas Barnebeck
  • Harr, Thomas
  • Tarp, Finn

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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Suggested Citation

  • Andersen, Thomas Barnebeck & Harr, Thomas & Tarp, Finn, 2006. "On US politics and IMF lending," European Economic Review, Elsevier, vol. 50(7), pages 1843-1862, October.
  • Handle: RePEc:eee:eecrev:v:50:y:2006:i:7:p:1843-1862
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    References listed on IDEAS

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    1. Bird, Graham, 1996. "Borrowing from the IMF: The policy implications of recent empirical research," World Development, Elsevier, vol. 24(11), pages 1753-1760, November.
    2. repec:cup:apsrev:v:98:y:2004:i:04:p:577-591_04 is not listed on IDEAS
    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. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071, August.
    5. 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, September.
    6. Barro, Robert J. & Lee, Jong-Wha, 2005. "IMF programs: Who is chosen and what are the effects?," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1245-1269, October.
    7. 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.
    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.
    9. Morris Goldstein & Peter Montiel, 1986. "Evaluating Fund Stabilization Programs with Multicountry Data: Some Methodological Pitfalls (Evaluation des programmes de stabilisation du Fonds à partir de données sur divers pays: quelques écueils," IMF Staff Papers, Palgrave Macmillan, vol. 33(2), pages 304-344, June.
    10. Knight, Malcolm & Santaella, Julio A., 1997. "Economic determinants of IMF financial arrangements," Journal of Development Economics, Elsevier, vol. 54(2), pages 405-436, December.
    11. repec:cto:journl:v:20:y:2000:i:1:p:85-103 is not listed on IDEAS
    12. Laffont, Jean-Jacques & Robert, Jacques, 1996. "Optimal auction with financially constrained buyers," Economics Letters, Elsevier, vol. 52(2), pages 181-186, August.
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    More about this item

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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