Conditional on Conditionality: IMF Program Design and Foreign Direct Investment

Byungwon Woo

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International Development and Aid International Business and FDI Global Financial Crisis and Policies

Abstract

The article explores how International Monetary Fund (IMF) program design influences foreign direct investment inflows. The author argues that stricter IMF conditionality signals a program-participating government's commitment to economic reforms, as it incurs larger ex ante political cost and risks greater ex post political cost. Thus, the catalytic effect of an IMF program is conditional on conditionality: programs with stricter conditions catalyze more foreign direct investment than those with less stringent conditions. Empirical analysis of the IMF conditionality dataset supports the argument and shows that after accounting for IMF program participation, the more structural conditions included in an IMF program, the more foreign direct investment flows into the country.

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References

1983Limited-Dependent and Qualitative Variables in Econometrics 1995Tracking Democracy's Third Wave with the Polity III Data 1997Signaling Foreign Policy Interests 2003Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment 2002IMF Programs: Who is Chosen and What Are the Effects?1999The High Politics of IMF Lending 2004The Political Economy of IMF Lending in Africa 2008The Scope of IMF Conditionality

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2019How structural adjustment programs affect inequality: A disaggregated analysis of IMF conditionality, 1980–2014 2019The World System and the Hollowing Out of State Capacity: How Structural Adjustment Programs Affect Bureaucratic Quality in Developing Countries 2018How to evaluate the effects of IMF conditionality 2015IMF Conditionality, Government Partisanship, and the Progress of Economic Reforms 2023A Thousand Cuts 2018Why Do Democracies Attract More or Less Foreign Direct Investment? A Metaregression Analysis

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