IDEAS home Printed from https://ideas.repec.org/p/fds/dpaper/201806.html
   My bibliography  Save this paper

IMF Conditionality and Capital Controls: Capital Account Liberalization to Capital Inflow Management?

Author

Listed:
  • Makram El-Shagi

    (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)

  • Steven Yamarik

    (California State University Long Beach, US)

Abstract

Since the end of the Bretton Woods system, promoting capital account liberalization has been one of the tenants of the IMF. Capital account liberalization was deemed one of the 10 pillars of what was often dubbed the “Washington Consensus.” Yet, things changed drastically with the Global Financial Crisis of 2008. From 2009 to 2012, comments from top IMF officials and staff reports displayed quite clearly that the IMF had revised its position where capital controls could be part of the toolkit. In this paper, we assess the role of the IMF in capital account liberalization from 1995 to 2015. We use a midpoint‐inflated ordered probit model to estimate the effects of being under IMF conditionality on capital controls, allowing for different effects for pre‐ and post‐Financial Crisis. We find that the IMF did indeed drive liberalization of capital inflows in the precrisis era, but stopped doing so in the postcrisis period.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Makram El-Shagi & Steven Yamarik, 2018. "IMF Conditionality and Capital Controls: Capital Account Liberalization to Capital Inflow Management?," CFDS Discussion Paper Series 2018/6, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    • Handle: RePEc:fds:dpaper:201806
    as

    Download full text from publisher

    File URL: http://cfds.henuecon.education/images/dpaper/WP_6_2018-ccimf.pdf
    File Function: First version, 2018
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Barry Eichengreen & Poonam Gupta & Ashoka Mody, 2008. "Sudden Stops and IMF-Supported Programs," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 219-266, National Bureau of Economic Research, Inc.
    2. Axel Dreher, 2009. "IMF conditionality: theory and evidence," Public Choice, Springer, vol. 141(1), pages 233-267, October.
    3. Ostry, Jonathan D. & Ghosh, Atish R. & Chamon, Marcos & Qureshi, Mahvash S., 2012. "Tools for managing financial-stability risks from capital inflows," Journal of International Economics, Elsevier, vol. 88(2), pages 407-421.
    4. Laura Alfaro, 2004. "Capital Controls: a Political Economy Approach," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 571-590, September.
    5. Ostry, Jonathan D., 2012. "Managing Capital Flows: What Tools to Use?," Asian Development Review, Asian Development Bank, vol. 29(1), pages 83-89.
    6. Luc Laeven & Fabian Valencia, 2020. "Systemic Banking Crises Database II," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(2), pages 307-361, June.
    7. Conway, Patrick, 1994. "IMF lending programs: Participation and impact," Journal of Development Economics, Elsevier, vol. 45(2), pages 365-391, December.
    8. Joseph P. Joyce & Ilan Noy, 2008. "The IMF and the Liberalization of Capital Flows," Review of International Economics, Wiley Blackwell, vol. 16(3), pages 413-430, August.
    9. Ruben Atoyan & Patrick Conway, 2006. "Evaluating the impact of IMF programs: A comparison of matching and instrumental-variable estimators," The Review of International Organizations, Springer, vol. 1(2), pages 99-124, June.
    10. Vittorio Grilli & Gian Maria Milesi-Ferretti, 1995. "Economic Effects and Structural Determinants of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 517-551, September.
    11. Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2019. "Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 599-646.
    12. Atish R Ghosh & Jun I Kim & Mahvash S Qureshi, 2020. "What’s in a name? That which we call capital controls," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 35(101), pages 147-208.
    13. Jonathan David Ostry & Atish R. Ghosh & Karl F Habermeier & Marcos d Chamon & Mahvash S Qureshi & Dennis B. S. Reinhardt, 2010. "Capital Inflows; The Role of Controls," IMF Staff Position Notes 2010/04, International Monetary Fund.
    14. Andrés Fernández & Michael W Klein & Alessandro Rebucci & Martin Schindler & Martín Uribe, 2016. "Capital Control Measures: A New Dataset," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 548-574, August.
    15. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    16. Dani Rodrik, 2006. "Goodbye Washington Consensus, Hello Washington Confusion? A Review of the World Bank's Economic Growth in the 1990s: Learning from a Decade of Reform," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 973-987, December.
    17. Brooks, Robert & Harris, Mark N. & Spencer, Christopher, 2012. "Inflated ordered outcomes," Economics Letters, Elsevier, vol. 117(3), pages 683-686.
    18. 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.
    19. Harris, Mark N. & Zhao, Xueyan, 2007. "A zero-inflated ordered probit model, with an application to modelling tobacco consumption," Journal of Econometrics, Elsevier, vol. 141(2), pages 1073-1099, December.
    20. Martin Schindler, 2009. "Measuring Financial Integration: A New Data Set," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 222-238, April.
    21. Alexander E. Kentikelenis & Thomas H. Stubbs & Lawrence P. King, 2016. "IMF conditionality and development policy space, 1985–2014," Review of International Political Economy, Taylor & Francis Journals, vol. 23(4), pages 543-582, July.
    22. Martin Steinwand & Randall Stone, 2008. "The International Monetary Fund: A review of the recent evidence," The Review of International Organizations, Springer, vol. 3(2), pages 123-149, June.
    23. Fernández, Andrés & Rebucci, Alessandro & Uribe, Martín, 2015. "Are capital controls countercyclical?," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 1-14.
    24. Przeworski, Adam & Vreeland, James Raymond, 2000. "The effect of IMF programs on economic growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 385-421, August.
    25. Mr. Marcos d Chamon & Miss Mahvash S Qureshi & Dennis B. S. Reinhardt & Mr. Atish R. Ghosh & Mr. Karl F Habermeier & Mr. Jonathan David Ostry, 2010. "Capital Inflows: The Role of Controls," IMF Staff Position Notes 2010/004, International Monetary Fund.
    26. Axel Dreher & Roland Vaubel, 2004. "Do IMF and IBRD Cause Moral Hazard and Political Business Cycles? Evidence from Panel Data," Open Economies Review, Springer, vol. 15(1), pages 5-22, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luca Papi & Andrea F Presbitero & Alberto Zazzaro, 2015. "IMF Lending and Banking Crises," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(3), pages 644-691, November.
    2. Ghosh, Atish R. & Ostry, Jonathan D. & Qureshi, Mahvash S., 2018. "Taming the Tide of Capital Flows: A Policy Guide," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262037165, April.
    3. Bilge Erten & Anton Korinek & José Antonio Ocampo, 2021. "Capital Controls: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 59(1), pages 45-89, March.
    4. Andrea F. Presbitero & Alberto Zazzaro, 2010. "IMF Lending in Low- and Middle-Income Countries in the Wake of the Global Crisis," Development Working Papers 305, Centro Studi Luca d'Agliano, University of Milano.
    5. Dreher, Axel & Walter, Stefanie, 2010. "Does the IMF Help or Hurt? The Effect of IMF Programs on the Likelihood and Outcome of Currency Crises," World Development, Elsevier, vol. 38(1), pages 1-18, January.
    6. Binici, Mahir & Das, Mitali, 2021. "Recalibration of capital controls: Evidence from the IMF taxonomy," Journal of International Money and Finance, Elsevier, vol. 110(C).
    7. Bal Gündüz, Yasemin, 2016. "The Economic Impact of Short-term IMF Engagement in Low-Income Countries," World Development, Elsevier, vol. 87(C), pages 30-49.
    8. Jorra, Markus, 2012. "The effect of IMF lending on the probability of sovereign debt crises," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 709-725.
    9. Bomprezzi, Pietro & Marchesi, Silvia, 2023. "A firm level approach on the effects of IMF programs," Journal of International Money and Finance, Elsevier, vol. 132(C).
    10. Zhitao Lin & Jinzhao Chen & Xingwang Qian, 2022. "Capital controls and the volatility of the renminbi covered interest deviation," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 205-236, February.
    11. Valerio Nispi Landi & Alessandro Schiavone, 2021. "The Effectiveness of Capital Controls," Open Economies Review, Springer, vol. 32(1), pages 183-211, February.
    12. Oberdabernig, Doris A., 2013. "Revisiting the Effects of IMF Programs on Poverty and Inequality," World Development, Elsevier, vol. 46(C), pages 113-142.
    13. Jon Frost & Hiro Ito & René van Stralen, 2020. "The effectiveness of macroprudential policies and capital controls against volatile capital inflows," Working Papers 686, DNB.
    14. Javier Bianchi & Guido Lorenzoni, 2021. "The Prudential Use of Capital Controls and Foreign Currency Reserves," Working Papers 787, Federal Reserve Bank of Minneapolis.
    15. Thomas Stubbs & Bernhard Reinsberg & Alexander Kentikelenis & Lawrence King, 2020. "How to evaluate the effects of IMF conditionality," The Review of International Organizations, Springer, vol. 15(1), pages 29-73, January.
    16. Presbitero, Andrea F. & Zazzaro, Alberto, 2012. "IMF Lending in Times of Crisis: Political Influences and Crisis Prevention," World Development, Elsevier, vol. 40(10), pages 1944-1969.
    17. Essers, Dennis & Ide, Stefaan, 2019. "The IMF and precautionary lending: An empirical evaluation of the selectivity and effectiveness of the Flexible Credit Line," Journal of International Money and Finance, Elsevier, vol. 92(C), pages 25-61.
    18. Nadav Ben Zeev, 2017. "Exchange Rate Regimes And Sudden Stops," Working Papers 1712, Ben-Gurion University of the Negev, Department of Economics.
    19. Nicolas Gavoille & Katharina Hofer, 2021. "Capital Controls and Electoral Cycles," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 69(2), pages 275-324, June.
    20. Loipersberger, Florian & Matschke, Johannes, 2022. "Financial cycles and domestic policy choices," European Economic Review, Elsevier, vol. 143(C).

    More about this item

    Keywords

    capital controls; IMF conditionality; global financial crisis;
    All these keywords.

    JEL classification:

    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fds:dpaper:201806. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kerstin El-Shagi (email available below). General contact details of provider: https://edirc.repec.org/data/sehencn.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.