Investor Responses to IMF Program Suspensions: Is Noncompliance Costly?*

Martin S. Edwards

39 citations0/0 files storedSocial Science Quarterly

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Global Financial Crisis and Policies International Development and Aid Economic, financial, and policy analysis

Abstract

Objective. This article reinvestigates the “catalytic” effects of IMF programs on investment controlling for the implementation of the program, allowing us to ascertain if capital markets respond to the mere announcement of a Fund program or its sustained positive implementation. Methods. Using a panel of data based on the experience of 106 developing countries entering Fund programs between 1979 and 1995, I employ both probit and tobit estimations to assess the effects of the announcement of a Fund program (and performance under it) on inflows of portfolio investment. Results. I find mixed evidence that good implementation serves to slow capital flight. I find consistently strong evidence that failed Fund programs produce portfolio flight. Conclusion. The findings suggest that we should think about the Fund's influence (both positive and negative) in light of how capital markets respond to its signals.

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References

2001New Tools in Comparative Political Economy: The Database of Political Institutions 1998Taking Time Seriously: Time-Series-Cross-Section Analysis with a Binary Dependent Variable 1993Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors 1996Inflows of Capital to Developing Countries in the 1990s 2000International Law and State Behavior: Commitment and Compliance in International Monetary Affairs 2001Global Capital and National Governments 2003The IMF and Economic Development 2000New tools and new tests in comparative political economy - the database of political institutions

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