The effects of the IMF on expropriation of foreign firms

This paper seeks to explain the determinants of foreign expropriation in the developing world. We argue that the International Monetary Fund (IMF) helps to reduce the likelihood of nationalization because of the direct leverage the Fund holds over borrowers, especially as expropriation is a blatant violation of international property rights. Using expropriation data from 1961 to 2006, and several different measures for the Fund, we find that countries under IMF agreements are less likely to nationalize foreign firms. We also show that the Fund’s influence is greatest when the IMF loan represents a larger share of the borrower country’s gross domestic product (GDP) as well as in countries with weaker political institutions. The takeaway is that IMF continues to influence policy choices in the developing world.     

Democracies only: When do IMF agreements serve as a seal of approval?

Conditional lending by the IMF is predicated, in part, on the belief that IMF programs are associated with increased capital inflows to participating countries. This belief is generally consistent with theoretical arguments in the academic literature (e.g., Bird and Rowlands 1997; Bordo et al. 2004) but the empirical literature often finds otherwise (e.g., Jensen 2004). This paper argues that the effect of IMF agreements on a country’s access to foreign direct investment (FDI) depends on its domestic institutions. Access to FDI depends on a country’s ability to credibly commit to implementation, and this ability varies systematically across regime type. The theory is empirically tested using a treatment effects model with a Markov transition in the treatment equation in a dataset covering 142 countries from 1976 to 2006. We find that in democracies IMF program participation has a strong positive effect on FDI inflows and in autocracies participation has a weak negative effect.     

IMF program compliance: Aggregate index versus policy specific research strategies

Consensus has grown that the economic reform programs of the International Monetary Fund (IMF) have failed to promote economic development. There is little consensus about how IMF programs should be reformed, however, because we do not understand why IMF programs have failed. Some critics contend that the IMF’s austere policy conditions are inappropriate for most program-countries and cause economic crises to deepen. Other critics argue that the policy conditions are actually ignored, and the IMF program loan ends up subsidizing the bad policies that caused the economic crises in the first place. This debate begs the compliance question. Unfortunately, the study of IMF compliance is not straightforward. IMF agreements span many dimensions, and the dimensions vary from agreement to agreement. Even along one dimension, governments are not held to the same standard. Rather than look at aggregate measures of compliance, this article proposes a return to studying specific conditions as was done in the earliest studies on IMF compliance.      

Adverse selection and growth under IMF programs

The dominant approach to studying the effects of IMF programs has emphasized moral hazard, but we find that adverse selection has more impressive effects. We propose a novel strategic selection model to study the growth effects of IMF programs, which allows for the possibility of adverse selection. We find that adverse selection occurs: the countries that are most interested in participating in IMF programs are the least likely to have favorable growth outcomes. Controlling for this selection effect, we find that countries benefit from IMF programs on average in terms of higher growth rates, but that some countries benefit from participation, while others are harmed. Moral hazard predicts that long-term users of Fund resources benefit least from participating in programs, while adverse selection predicts the opposite. Contrary to previous findings, we find that IMF programs have more successful growth performance among long-term users than among short-term users.     

The Effect of IMF Programs on Women’s Economic and Political Rights

Though much research has been devoted to the socioeconomic and political consequences of International Monetary Fund (IMF) programs for recipient countries, little is known about the impacts of these programs on the level of respect for women’s rights. We postulate that IMF-induced policy reforms of privatization and public spending cuts, and the growing political repression and instability following the implementation of IMF programs, undermine the government’s ability and willingness to protect women’s economic and political rights. To substantiate the theoretical claims, we combine data on women’s political and economic rights with data on IMF programs for the years 1981–2004. Our findings suggest that IMF involvement is likely to deteriorate the level of respect for women’s economic rights while having no discernible effect on women’s political rights. The results further indicate that the effect of these programs is not conditioned by political regime type and economic wealth of recipient countries. One major policy implication of our findings is that the IMF should start to recognize that the conditions attached to lending programs might be implemented at the expense of women’s economic rights and that more explicit protections of women’s rights need to be included in program negotiations.     

The Catalytic Effect of IMF Lending: Evidence from Sectoral FDI Data

Our study contributes to the search for the elusive catalytic effect of International Monetary Fund (IMF) lending on inflows of foreign direct investment (FDI). Recent scholarship has found that the catalytic effect is conditional on political regime and program stringency. We contribute to this literature by developing and testing a theory which describes how the catalytic effect also varies by economic sector. This is a departure from existing studies, which have tended to focus on aggregate FDI flows after crises. Our findings corroborate previous research, which finds that in general IMF lending has a substantial and negative effect on FDI. However, we find that the negative effect is concentrated in sectors that are highly dependent on external capital and have low sunk costs in the host country. Our findings are robust to several alternative explanations common in IMF literature, namely the importance of IMF program design and the ability of governments to make credible commitments to reform. Substantively, our findings suggest that investors are more likely to use IMF lending as an escape hatch in countries where FDI is dependent on external capital and has low sunk costs.     

Looking Beyond the National Level: Foreign Direct Investment Attraction in U.S. States

International relations scholars need to look beyond the national level because U.S. states and governors are increasingly important actors in world politics. One way to look at their international activities is by examining the ways in which U.S. states seek to attract foreign direct investment (FDI), just one research puzzle at the nexus of international relations and U.S. state politics, two fields that rarely talk to one another. After pointing out the gaps within theories from international relations and international political economy, this paper describes the evolving global roles of both U.S. states and governors and shows how U.S. states attract FDI through the use of their international offices and governor-led overseas missions. Empirical findings indicate that U.S. states' international offices and a higher level of economic interdependence help states attract FDI, and the paper argues that extension of institutional approaches from IPE may be valuable for future research about the international capabilities of subnational governments and their leaders.     

Does Membership on the UN Security Council Influence Voting in the UN General Assembly?

Recent studies report that temporary members of the UN Security Council receive favorable treatment from the IMF, the World Bank, or in US foreign aid in exchange for their political support for permanent members. Nevertheless, few studies have examined whether this favorable treatment and these benefits have actually made any significant changes in the member states’ voting behavior in the United Nations. To explore this question, we investigate whether membership on the UN Security Council influences a state’s voting in the UN General Assembly. In the analysis of panel data for 197 countries over the period from 1946 to 2008, the empirical results show that elected members of the UN Security Council tend to behave similarly with permanent members, especially with the United States, as the number of loan programs signed with the IMF and the World Bank increases. Also, US foreign aid significantly increases temporary members’ vote coincidence with the United States and other permanent members. In this regard, this article contributes to our understanding of state voting behavior and power politics in international organizations.     

Regionalizing Multilateralism: Estimating the Power of Potential Regional Voting Blocs in the IMF

This paper explores the voting power of hypothetical regional voting blocs in the Executive Board of the International Monetary Fund. We first discuss the prospect of regionally defined groups becoming more significant in the Fund’s decision-making process. After briefly outlining the IMF’s formal decision procedures, including its weighted voting system, use of special majorities, and the function of voting groups in the Fund’s Executive Board we define three indices of a priori voting power — the Banzhaf, Johnston, and Shapley-Shubik indices — which are then applied to existing voting groups. Following this we simulate several regionally defined a priori coalitions and their potential to influence outcomes in passing resolutions in the Fund using a simple majority. The coalitions we specify are based on the assumption that members of the IMF will form into voting blocs based on regionally-defined preferences. The procedures employed use existing voting weights to project the relative strengths of alternative regional blocs that could emerge within the IMF. Our results indicate that the United States would have the greatest voting power in almost all scenarios. A voting bloc comprised of European countries, however, would be able to dominate the United States unless the U.S. formed an Asia-Pacific bloc. Japan, the PRC, and other Asian countries appear to be unable to form voting blocs that would provide them with more voting power than the United States.     

International institutions and credible commitment of non-democracies

How do non-democratic countries credibly commit to policies in front of domestic and international audiences? Unlike democracies, non-democracies do not have functioning electoral systems and free presses to make their commitments costly thus credible. Yet, the need to credibly commit to a policy arises for non-democracies as well. In particular, when non-democratic leaders push for economic reforms, they need to coordinate the beliefs of domestic groups and attract international resources. How do non-democracies solve the commitment problem and succeed in achieving their policy goals? In this study, we argue that international institutions provide an important mechanism through which non-democratic countries could credibly signal their commitment to open economic policies. We test the argument with the involvement of IMF programs by post-communist countries from 1989 to 2005. We find that while IMF status is used as a credible commitment device for all countries, the effect is more significant for non-democracies.     

Economic Sanctions and the Politics of IMF Lending

What effect do economic sanctions have on the IMF lending decisions? Though countries under economic sanctions often face significant economic and financial difficulties, no comprehensive research to date has explored whether the IMF as a de facto lender of last resort intervenes in those countries in need. We posit that economic coercion is likely to hinder the target’s access to IMF credits as sanctioning (sender) countries are likely to use their political influence in the IMF to deny funds to the destabilized target economies. To assess the empirical merits of the hypothesis, we combine data on the IMF lending with the economic sanctions data for 120 emerging market economies from 1975 to 2005. Results indicate that target countries are less likely to receive IMF funds, especially when under sanctions by the United States and international institutions. Our findings contradict the conventional wisdom that the IMF is tasked with providing lifelines to member governments in need of help to ease their short-term balance of payment problems. Further, as much as IMF loans can be used as positive inducements to acquire a country’s strategic cooperation, we show that they might also be used by sender countries as a punishment tool against target countries to amplify the impact of sanctions regimes.     

Are IMF lending programs good or bad for democracy?

Have IMF lending programs undermined political democracy in borrowing countries? Building on the extensive literature on conditional lending, we outline several pathways through which IMF program participation might affect the levels of democracy in borrowing countries - including a new variant that suggests the possibility of a positive association between lending program participation and democracy scores. In order to test the argument we assemble annual data from 120 low- and middle-income countries observed (at maximum) in each year between 1971 and 2007. We use three strategies - genetic matching, instrumental variables, and difference-in-differences estimation - to better estimate the direction and size of the statistical association between participation in IMF lending programs and the level of democracy. We find evidence for modest but definitively positive conditional differences in the democracy scores of participating and non-participating countries.     

IMF programs and human rights, 1981–2003

We examined the effects of International Monetary Fund (IMF) supervised programs on changes in government respect for physical integrity rights in developing countries between 1981 and 2003. A longer period under an IMF program increased government use of torture and extra judicial killing and also worsened the overall human rights conditions in developing countries. The use of a two-stage model ruled out the possibility that human rights practices would have worsened even if IMF programs had not been in effect. Previous studies of the impacts of IMF programs also found that they had worsened government respect for human rights. However, those studies did not control for the effects of selection. We found preliminary evidence that the worsened human rights conditions persisted even after the reforms in program lending of the late 1990s.

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The Political Economy of U.S. Direct Investment in East Asian NICs, 1966–2000

This paper examines the role of FDI from the United States in the economic performance of East Asian NICs for 1966–2000. To this end, we draw our argument of the role of FDI from the modernization–dependency debate. Then, we test the economic effects of U.S. direct investment on economic growth in East Asian NICs using a neoclassical production function model that captures the economic impacts of both foreign and domestic investment on economic growth. Our empirical results show that U.S. direct investment has a positive and significant effect on economic growth in East Asian NICs.     

The Growing Role of States in U.S. Foreign Policy: The Case of the State Partnership Program

States can and do play an important role in contemporary U.S. foreign policy. This article will discuss the growing role of states through an investigation of the State Partnership Program (SSP). The SSP pairs state National Guards with the militaries of other countries through U.S. military engagement programs. The state-level National Guard then becomes the primary site for implementing U.S. military engagement programs. Both a federalism and decision-making perspective, however, are unable to recognize this role. The decision-making bias of foreign policy analysis affords states a limited international role and minimal influence in shaping the policies of the government toward other countries. An implementation perspective, however, reveals a growing role of states carrying out U.S. foreign policy, including the "high politics" of national security issues. States give decisions meaning through the practice of policy implementation. A detailed case study of the Maryland–Estonia partnership illustrates how an implementation perspective can recognize a growing role of states in shaping U.S. foreign policy.     

U.S. Foreign Aid and UN Voting: An Analysis of Important Issues

Many previous studies assessed the effectiveness of U.S. foreign aid by focusing on voting coincidence rates of all UN votes and found no relationship between U.S. aid distribution and UN voting coincidence rates. Most UN resolutions, however, are simply not important enough for the U.S. to expend its scarce resources in influencing the outcomes. The U.S. government would not be likely to exercise pressure on all UN resolutions but would do so on issues considered vital to America's national interests. If there is any effect from receiving U.S. foreign aid on political outcomes in the UN, it is therefore most likely to emerge in voting coincidence rates on important issues. Using data collected for sixty-five developing countries between 1984 and 1993, a pooled cross-sectional and time-series research design is adopted to examine this hypothesis. Contrary to the argument that foreign aid is an ineffective policy instrument in the pursuit of America's global influence, the currentfindings suggest that the U.S. government has successfully utilized foreign aid programs to induce foreign policy compliance in the UN on issues that are vital to America's national interests.     

Should it be curtains for some of the IMF’s lending windows?

Increasing attention is being paid to IMF governance and operations, but not to how IMF programs are differentiated under the array of available lending windows. This paper examines empirically the economic and political circumstances associated with the use of IMF facilities. It therefore extends existing research into the determinants of IMF arrangements by investigating the extent to which different influences are at work in the case of different facilities. Focusing initially on extended arrangements as compared to stand-bys, the results indicate that although initially the facilities were used in different economic circumstances, since the mid 1980s these differences have largely disappeared. Instead the differences between user countries have become more political than economic. There are, however, some differences between concessionary and non-concessionary facilities beyond the income levels of countries using them. The policy implications for the range and design of the Fund’s lending windows are discussed.

Public Goods or Political Pandering: Evidence from IMF Programs in Latin America and Eastern Europe

This article uses empirical evidence from Latin American and East European International Monetary Fund (IMF) programs from 1982 to 2001 to analyze the nature and the extent of preferential lending practices by the IMF. Unlike prior work, which focused on narrow political interference from large IMF member states, the present analysis differentiates between such narrow interests and the Fund's international systemic responsibilities, which may justify the preferential treatment of systemically important countries to prevent broader regional or global crises. The empirical results suggest that systemically based deviations from technocratic impartiality predominate in situations—such as the Latin American debt crisis—where international financial stability is under serious threat. Under such circumstances, economically important countries do receive preferential IMF treatment but only when experiencing severe crises, while narrow "private goods" considerations are largely sidelined. When systemic threats are less immediate—such as in Latin America and Eastern Europe in the 1990s—IMF favoritism reflects a more volatile and region-specific mix of private and public considerations in line with the changing interests of powerful Western nations in the developing world.     

The International Monetary Fund: A review of the recent evidence

A review of recent quantitative studies on the International Monetary Fund reveals that much of the conventional wisdom is incorrect. Recent studies have demonstrated a new degree of methodological rigor, have drawn more heavily upon insights from political science, and have asked a number of new questions. We review studies of participation in IMF programs, design of IMF conditionality, implementation and enforcement of IMF conditions, conventional program effects and catalytic effects. At every stage, we find substantial evidence of the influence of major IMF shareholders, of the Fund’s own organizational imperatives, and of domestic politics within borrowing countries. We conclude that very little is known with certainty about the effects of IMF lending, but that a great deal has been learned about the mechanics of IMF programs that will have to be taken into account in order to obtain unbiased estimates of those effects.

The activities of the institute

The debate on the role of the IMF in low-income countries has recently gained strength in light of the commitment by the international community to support achievement of the Millennium Development Goals by 2015. The IMF fulfils an important role as an information provider to low-income aid-recipient countries and their bilateral donors, who consider Fund signals as a useful device in their allocation decisions. The IMF also provides lending to low-income countries through the Poverty Reduction and Growth Facility (PRGF), established in 1999. The PRGF was designed to address earlier criticism claiming that IMF lending programs to low-income countries had privileged stabilisation over poverty-reducing growth through financial arrangements that had shown little ownership by those countries. The PRGF was meant to support a balanced macroeconomic framework in which low-income economies could pursue growth-enhancing measures with relevant poverty-reducing effects, reflecting policy priorities put forward by the countries themselves. Based on the available evidence, PRGF-supported countries have recorded a favourable growth performance vis-à-vis non-PRGF-supported countries, although the extent to which this outcome has translated into poverty reduction has yet to be assessed.