Studying IMF Effectiveness
CAN THE International Monetary Fund influence the economic policies of the countries to which it lends? Country experts and officials who represent borrowing nations contend that the IMF exerts tremendous influence, although they disagree about whether that influence is benign or harmful. Quantitative researchers, on the other hand, have tended to find little evidence that the IMF influences national economic policies. This chapter reviews the quantitative evidence published to date, as well as some unpublished studies, and suggests an explanation for the incongruity between the perceptions of those who know individual countries best and the findings of those who use quantitative data to study many countries. I contend that the vast majority of quantitative studies of IMF lending use data that are insufficiently precise, fail to control for variables that measure the political constraints that most often lead to program failure, and misspecify their statistical models because they do not treat the IMF's policies as endogenous. The chapter goes on to outline a series of political economy hypotheses that should be included in any statistical model of IMF effectiveness. It then describes the data set developed to test the formal model presented in Chapter 2, the Post-Communist Politics and Economics Database (PCPED).
There is a substantial econometric literature on the efficacy of IMF stabilization programs. Most of the empirical studies are inconclusive; although some studies show that the IMF's programs influence macroeconomic aggregates in the intended direction, others indicate that these programs are counterproductive in the same terms. Most of the findings reported in the literature are negative: they are unable to show any correlation between variables representing interactions with the IMF and variables representing national policies or economic outcomes. This rather impressive non-finding has attracted the sustained attention of reviewers of the literature and has led to pessimistic conclusions about the Fund's ability to influence the macroeconomic policies of its target