An Assessment of the Effectiveness of International Financial Intervention

Abstract

The two global international financial institutions, the International Monetary Fund and the World Bank, frequently, and often repeatedly, extend loans to developing nations. Recently, these loans have been blamed for generating adverse economic outcomes. An empirical growth model, which controls for the other determinants of growth, is used to assess the growth impact of Fund and Bank loan programs. The primary focus is on the heavily criticized IMF lending programs. Another unique feature of this study is the use of the value of lending programs rather that the number of programs. The estimates indicate that Bank lending stimulates growth in some cases, primarily by increasing public investment. Fund lending is either neutral or detrimental to growth. The channel for this effect is a negative impact of Fund lending on private investment.

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