International Financial Institutions and Market Liberalization in the Developing World

Abstract

Abstract This article examines the role played by the two most important international financial institutions (IFIs), the World Bank and the International Monetary Fund (IMF), in the developing countries’ transition towards market liberalization and openness. More specifically, it considers whether IFIs are powerful “globalizers” of the developing world or ineffective organizations whose grand plans are forever thwarted by savvy governments promising sweeping reforms that never materialize. Drawing on the findings from thirty-one recent empirical studies, it concludes that there is no clear evidence that the IFIs’ conditional lending has significant effects on structural reforms in developing countries. Nevertheless, the chapter argues that we should not regard the IFIs as completely useless agents in the effort to remake developing countries’ economies over the past thirty years, suggesting that their indirect effects on liberalizing policy reforms may be more important than the direct effects.

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