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On the Conditional Effects of IMF Program Participation on Output Growth

  • Michael Binder
  • Marcel Bluhm
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    The empirical evidence currently available in the literature regarding the effects of a country's IMF program participation on its output growth is rather mixed. To shed new evidence on this issue, in this paper we specify a state-dependent panel data model accounting in particular for program participation selection and the potential conditionality of the output growth effects of program participation on a country's degree of program implementation and institutional factors such as quality of governance, internal stability, health, and educational attainment. We find that the effects of IMF program participation on output growth vary systematically with the degree of program implementation as well as our index of institutional factors, and that these effects are positive only if the IMF program is implemented to a sufficient degree or if the program participation is coupled with sufficient progress in improving institutional quality.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-08/cesifo1_wp3161.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3161.

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    Date of creation: 2010
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    Handle: RePEc:ces:ceswps:_3161
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    1. Michael Binder & Cheng Hsiao & M. Hashem Pesaran, 2000. "Estimation and Inference In Short Panel Vector Autoregressions with Unit Roots And Cointegration," CESifo Working Paper Series 374, CESifo Group Munich.
    2. Dreher, Axel, 2006. "IMF and economic growth: The effects of programs, loans, and compliance with conditionality," World Development, Elsevier, vol. 34(5), pages 769-788, May.
    3. Vella, Francis & Verbeek, Marno, 1999. "Two-step estimation of panel data models with censored endogenous variables and selection bias," Journal of Econometrics, Elsevier, vol. 90(2), pages 239-263, June.
    4. Francis Vella, 1998. "Estimating Models with Sample Selection Bias: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 127-169.
    5. Anastasia Semykina & Jeffrey M. Woodridge, 2010. "Estimating Panel Data Models in the Presence of Endogeneity and Selection," Working Papers wp2010_10_01, Department of Economics, Florida State University.
    6. Evrensel, Ayse Y., 2002. "Effectiveness of IMF-supported stabilization programs in developing countries," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 565-587, October.
    7. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    8. Dicks-Mireaux, Louis & Mecagni, Mauro & Schadler, Susan, 2000. "Evaluating the effect of IMF lending to low-income countries," Journal of Development Economics, Elsevier, vol. 61(2), pages 495-526, April.
    9. Hutchison, Michael M. & Noy, Ilan, 2003. "Macroeconomic effects of IMF-sponsored programs in Latin America: output costs, program recidivism and the vicious cycle of failed stabilizations," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 991-1014, December.
    10. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    11. Gourieroux, Christian & Monfort, Alain & Renault, Eric & Trognon, Alain, 1987. "Generalised residuals," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 5-32.
    12. Jacques J. Polak, 1991. "The Changing Nature of IMF Conditionality," OECD Development Centre Working Papers 41, OECD Publishing.
    13. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
    14. Polak, J.J., 1991. "The Changing Nature of IMF Conditionality," Princeton Studies in International Economics 184, International Economics Section, Departement of Economics Princeton University,.
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