Signalling credibility? The IMF and catalytic finance

Edwards, Martin S.

doi:10.1057/palgrave.jird.1800079

Cited by 57 publications

(62 citation statements)

References 71 publications

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“…As Edwards (2006) shows, this remains true when the degree of program implementation is controlled for. There seems to be no strong evidence that IMF conditionality serves as seal of approval to investors and lenders.…”

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confidence: 87%

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IMF conditionality: theory and evidence

2009

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This article analyzes whether and to what extent reliance on conditionality is appropriate to guarantee the revolving character of the resources of the International Monetary Fund (IMF). The paper presents theoretical arguments in favor of conditionality, and those against the use of conditions. It summarizes the track record of program implementation and discusses the evidence of factors determining implementation. Whether proponents or critics of conditionality can be supported by existing data analysis is also investigated, as is the success of conditionality in terms of outcomes. The final section draws policy implications.

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confidence: 87%

“…The same is true for the overall fiscal deficit. Edwards (2001bEdwards ( , 2006 analyzed 347 programs between 1979 and 1997. He gathered information from different sources, including the Fund's archives, on whether a program was suspended.…”

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confidence: 99%

IMF conditionality: theory and evidence

2009

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“…On the other hand, Jensen (2004) finds that being on an IMF program results in a negative impact on inward FDI equivalent to 25% less nations not on the IMF program. Other studies such as Edwards (2006) find that being on an IMF program leads to capital flight. Bird and Rowlands (2007) find that the impact is dependent on the level of debt and negative impact for those with medium to and high levels of indebtedness.…”

Section: The Role Of the Imf In Facilitating Economic Growthmentioning

confidence: 95%

Reforming the IMF to Increase FDI Led Economic Growth: The Case of Latin American and Caribbean Countries

Mahate¹

2018

Management and Economics Research Journal

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There is a strong body of literature that finds a direct connection between inward foreign direct investment and economic growth in the host country. At the same time, economic growth in the host country attracts additional Foreign Direct Investment (FDI). This bidirectional relationship can be supported by the IMF through its lending program to countries to assist in dealing with short-term shocks as well as managing more long-term structural issues. In fact, the IMF programs in theory should provide an indicator to potential investors that the country is committed to making a change and opening its economy, which are typical requirements under IMF conditions. IMF intervention should lead to a positive impact on inward FDI. This study examines the impact of IMF-support programs on inward FDI for a sample of Latin American and Caribbean Countries. The results from this study reveal that being on an IMF borrowing program has a negative impact on inward FDI in the second and third year. We argue that being on an IMF borrowing program does not provide inward FDI with the seal of approval that it requires in making an investment.

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“…Eichengreen and Mody (2003) …nd a stronger catalytic e¤ect for intermediate economic fundamentals. Edwards (2003) …nds no catalytic e¤ect on bond issuance. The opposite is true for Mody and Saravia (2003), who …nd that larger programs are associated with stronger catalysis and that a continued IMF presence in a country reinforces this e¤ect.…”

Section: Catalytic Imf Lending: a Review Of The Literaturementioning

confidence: 99%

“…We build the baseline IRF from the coe¢ cients 1;h (where we assume IM F i;t = 0) and we compare these results to the sum of 1;h + 2;h (equivalent to assuming IM F i;t = 1). 15 Finally, we test the statistical signi…cance of the di¤erences between the e¤ects under crisis and without crisis. This test is equivalent to test for 2;h = 0.…”

Section: Dynamic E¤ects and Underlying Vulnerabilitiesmentioning

confidence: 99%

Catalytic IMF? A Gross Flows Approach

Erce¹,

Riera‐Crichton

2015

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The financial assistance the International Monetary Fund (IMF) provides is assumed to catalyze fresh investment. Such a catalytic effect has, however, proven empirically elusive. This paper deviates from the standard approach based on the net capital inflow to study instead the IMF's catalytic role in the context of gross capital flows. Using fixed-effects regressions, instrumental variables and local projection methods, we find significant differences in how resident and foreign investors react to IMF programs as well as in inward and outward flows. While IMF lending does not catalyze foreign capital, it does affect the behavior of resident investors, who are both less likely to place their savings abroad and more likely to repatriate their foreign assets. As domestic banks' flows drive this effect, we conclude that IMF catalysis is "a banking story". In comparing the effects across crisis types, we find that the effect of the IMF on resident investors is strongest during sovereign defaults, and that it exerts the least effect on foreign investors during bank crises. AbstractThe …nancial assistance the International Monetary Fund (IMF) provides is assumed to catalyze fresh investment. Such a catalytic e¤ect has, however, proven empirically elusive. This paper deviates from the standard approach based on the net capital in ‡ow to study instead the IMF's catalytic role in the context of gross capital ‡ows. Using …xed-e¤ects regressions, instrumental variables and local projection methods, we …nd signi…cant di¤erences in how resident and foreign investors react to IMF programs as well as in inward and outward ‡ows. While IMF lending does not catalyze foreign capital, it does a¤ect the behavior of resident investors, who are both less likely to place their savings abroad and more likely to repatriate their foreign assets. As domestic banks' ‡ows drive this e¤ect, we conclude that IMF catalysis is "a banking story". In comparing the e¤ects across crisis types, we …nd that the e¤ect of the IMF on resident investors is strongest during sovereign defaults, and that it exerts the least e¤ect on foreign investors during bank crises.

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Signalling credibility? The IMF and catalytic finance

Cited by 57 publications

References 71 publications

IMF conditionality: theory and evidence

IMF conditionality: theory and evidence

Reforming the IMF to Increase FDI Led Economic Growth: The Case of Latin American and Caribbean Countries

Catalytic IMF? A Gross Flows Approach

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