Evaluating the Impact of Non-Financial IMF Programs Using the Synthetic Control Method

Monique Newiak · Tim Willems

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International Development and Aid Monetary Policy and Economic Impact Global Financial Crisis and Policies

Abstract

We use the Synthetic Control Method to study the effect of IMF advice on economic growth, inflation, and investment. The analysis exploits the existence of IMF programs that do not involve any financing (Policy Support Instruments, “PSIs”). This enables us to focus on the effects of IMF monitoring, advice, and approval (as opposed to direct financial assistance). In addition, countries with non-financial programs are typically not crisis-struck – thereby mitigating the reverse causality problem and facilitating the construction of counterfactuals. Results suggest that treated countries add about 1 percentage point in annual real GDP per capita growth, with inflation being lower by some 3 percentage points per year. While we do not find evidence for an impact on total investment and the resulting capital stock, PSI-treatment does seem to stimulate foreign direct investment.

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References

2003The Economic Costs of Conflict: A Case Study of the Basque Country 2005What matters for financial development? Capital controls, institutions, and interactions 2007The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970–2004 1999Foreign direct investment-led growth: evidence from time series and panel data 2013Catastrophic Natural Disasters and Economic Growth 2002IMF Programs: Who is Chosen and What Are the Effects?2000The effect of IMF programs on economic growth 2009Aid, Dutch disease, and manufacturing growth

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