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Do IMF Programs Stimulate Private Sector Investment?

Author

Listed:
  • Pietro Bomprezzi
  • Silvia Marchesi
  • Rima Turk-Ariss

Abstract

This paper investigates the dynamic aggregate response of firm investments to the approval of an IMF arrangement. Using a local projection methodology, we Â…nd that distinguishing between General Resource Account (GRA) and Poverty Reduction and Growth Trust (PRGT) Â…nancing matters for the path of investment. Following a GRA arrangement, investments start to increase after two years, while the effect is quite limited after a PRGT. Adopting a stacked difference-in-differences estimator and exploiting firm-level characteristics, we find that firms having a domestic ownership, relying more on external finance, or which are more subject to uncertainty, invest more following a GRA agreement.

Suggested Citation

  • Pietro Bomprezzi & Silvia Marchesi & Rima Turk-Ariss, 2023. "Do IMF Programs Stimulate Private Sector Investment?," Working Papers 520, University of Milano-Bicocca, Department of Economics, revised May 2023.
    • Handle: RePEc:mib:wpaper:520
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    References listed on IDEAS

    as
    1. Mikkel Plagborg‐Møller & Christian K. Wolf, 2021. "Local Projections and VARs Estimate the Same Impulse Responses," Econometrica, Econometric Society, vol. 89(2), pages 955-980, March.
    2. Dreher, Axel & Sturm, Jan-Egbert & Vreeland, James Raymond, 2009. "Global horse trading: IMF loans for votes in the United Nations Security Council," European Economic Review, Elsevier, vol. 53(7), pages 742-757, October.
    3. 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)

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    More about this item

    Keywords

    IMF; Firm investment; Local Projection; Financial Frictions; Difference-in-Differences;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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