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Selection Bias and the Output Costs of IMF Programs

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  • Michael M. Hutchison

    (University of California, Santa Cruz)

Abstract

Questions over the role of the IMF in the economic development and adjustment in developing countries have been the topic of intensive research and debate in recent years. Although most studies find that participation in an IMF program helps facilitate balance of payments adjustment, research in this area almost uniformly finds that growth is reduced at the same time (e.g. Bordo and Schwartz, 2000; Przeworski and Vreeland, 2000). In this paper we emphasize that the evaluation of the benefits and costs of participating in IMF-sponsored stabilization programs is complicated by the fact that countries typically enter into an agreement with the IMF only when facing dire economic problems. We argue that the sample selection bias is mainly responsible for the common perception that real output growth declines because countries choose to participate in IMF programs. This article uses four recently developed “matching” statistical methods (e.g. Heckman et al., 1997 and 1998; Rubin and Thomas, 1992; and others), based on the “selection on observables” bias, to estimate the growth effects of IMF program participation. In contrast with the extant literature, none of the matching method results (nearest neighbor, strata, radius and regression-adjusted) find an adverse growth effect. Rather, there is some evidence of a positive impulse to economic growth when countries entering IMF programs are compared to the appropriate counter-factual (i.e. non-participating countries with similar characteristics).

Suggested Citation

  • Michael M. Hutchison, 2004. "Selection Bias and the Output Costs of IMF Programs," EPRU Working Paper Series 04-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:04-15
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    File URL: http://www.econ.ku.dk/epru/files/wp/wp-04-15.pdf
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    References listed on IDEAS

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    1. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 605-654.
    2. Richard Blundell & Monica Costa Dias, 2000. "Evaluation methods for non-experimental data," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 427-468, January.
    3. 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.
    4. Conway, Patrick, 1994. "IMF lending programs: Participation and impact," Journal of Development Economics, Elsevier, vol. 45(2), pages 365-391, December.
    5. Boughton, James M, 2000. "From Suez to Tequila: The IMF as Crisis Manager," Economic Journal, Royal Economic Society, vol. 110(460), pages 273-291, January.
    6. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    7. Graham Bird, 2002. "The Completion Rate of IMF Programmes: What We Know, Don't Know and Need to Know," The World Economy, Wiley Blackwell, vol. 25(6), pages 833-847, June.
    8. Joseph P. Joyce, 2001. "Time present and time past: a duration analysis of IMF program spells," Working Papers 01-2, Federal Reserve Bank of Boston.
    9. Michael Hutchison, 2003. "A Cure Worse Than the Disease? Currency Crises and the Output Costs of IMF-Supported Stabilization Programs," NBER Chapters,in: Managing Currency Crises in Emerging Markets, pages 321-360 National Bureau of Economic Research, Inc.
    10. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
    11. 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.
    12. Bird, Graham & Hussain, Mumtaz & Joyce, Joseph P., 2004. "Many happy returns? Recidivism and the IMF," Journal of International Money and Finance, Elsevier, vol. 23(2), pages 231-251, March.
    13. Reuven Glick & Ramon Moreno & Mark M. Spiegel, 2001. "Financial crises in emerging markets," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar.23.
    14. 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.
    15. Bordo, Michael D. & Schwartz, Anna J., 2000. "Measuring real economic effects of bailouts: historical perspectives on how countries in financial distress have fared with and without bailouts," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 81-167, December.
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    Citations

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    Cited by:

    1. Achim Ahrens & Joachim Zweynert, 2012. "Conditionality or specificity? Bulgaria and Romania's economic transition performance in comparative perspective," Post-Communist Economies, Taylor & Francis Journals, vol. 24(2), pages 291-307, February.
    2. Binder, Michael & Bluhm, Marcel, 2014. "On the Conditional Effects of IMF Loan Program Participation on Output Growth," IMFS Working Paper Series 78, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    3. Doug Dyer & Majdi Quttainah & Pengfei Ye, 2015. "Privatization, intermediation and performance: global evidence," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(2), pages 207-229, December.
    4. 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.
    5. Calixte Ahokpossi & Laurence Allain & Giovanna Bua, 2014. "A Constrained Choice? Impact of Concessionality Requirements on Borrowing Behavior," IMF Working Papers 14/176, International Monetary Fund.
    6. 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.
    7. repec:aka:aoecon:v:67:y:2017:i:3:p:311-332 is not listed on IDEAS
    8. Chung-Hua Shen & Yuan Chang, 2009. "Ambition Versus Conscience, Does Corporate Social Responsibility Pay off? The Application of Matching Methods," Journal of Business Ethics, Springer, vol. 88(1), pages 133-153, April.

    More about this item

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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