The Economics of the Democratic Deficit: The Effect of IMF Programs on Inequality

Lang, Valentin

doi:10.2139/ssrn.2883120

Cited by 51 publications

(92 citation statements)

References 95 publications

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“…Finding such an excludable instrument presents a formidable challenge. We address potential endogeneity of conditionality by using an instrumentation strategy that has been popularized mainly in aid effectiveness research (Lang 2016;Nunn and Qian 2014;Werker, Ahmed, and Cohen 2009). For each type of condition, we construct a compound instrument based on the interaction of the withincountry average of these conditions and the annual number of countries under programs.…”

Section: Econometric Methodsmentioning

confidence: 99%

“…We argue this instrumentation is valid. First, the instrument fulfils the relevance criterion because when the Fund assists more countries in any period, its resources are more stretched so that it assigns more conditions to any given country as a safeguard measure (Dreher and Vaubel 2004;Lang 2016;Vreeland 2003). Second, the instrument likely fulfills the exclusion restriction because country-specific changes in conditionality that deviate from its long-run average are brought about only by an IMF decision that does not pertain to the given country-notably to issue more conditions to all its borrowers when its resources are more demanded (Stubbs et al 2018).…”

Section: Econometric Methodsmentioning

confidence: 99%

“…We would be more confident in our findings though if we could show robustness to alternative choices on the time-varying component of the compound instrument. To that end, we use the IMF liquidity ratio in a robustness check (Lang 2016).…”

Section: Econometric Methodsmentioning

confidence: 99%

See 2 more Smart Citations

The political economy of labor market deregulation during IMF interventions

Reinsberg

Stubbs

Kentikelenis

et al. 2019

International Interactions

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This study examines the relationship between policy interventions by the International Monetary Fund (IMF) and de jure labor rights. Combining two novel datasets with unprecedented country-year coverage-leximetric data on labor laws and disaggregated data on IMF conditionality-our analysis of up to 70 developing countries from 1980 to 2014 demonstrates that IMF-mandated labor market policy measures significantly reduce both individual and collective labor rights. Once we control for the effect of labor market policy measures, however, we find that collective labor rights increase in the wake of IMF programs. We argue that this result is explained by the impact of union pressure on governments which, in such a context, are imbued with the policy space to respond to domestic interest groups. The study has broader theoretical implications as to when international organizations are effective in constraining governments' choices.

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Section: Econometric Methodsmentioning

confidence: 99%

Section: Econometric Methodsmentioning

confidence: 99%

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The political economy of labor market deregulation during IMF interventions

Reinsberg

Stubbs

Kentikelenis

et al. 2019

International Interactions

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show abstract

“…Several scholars link IMF programs to political instability and suggest that they increase the risk of civil war onset (Hartzell et al 2010), coup d'états (Casper 2017), and government crises (Dreher and Gassebner 2012). One explanation for these politically destabilizing effects of IMF programs is that the burdens of economic adjustments under IMF programs are often distributed unequally (Lang 2016;Vreeland 2002).…”

Section: Adjustment Effectsmentioning

confidence: 99%

“…Source: Dreher (2006, updated) We apply several empirical approaches to circumvent this endogeneity problem. Our main identification strategy is based on an instrumental variable (IV) that combines temporal variation in the IMF's liquidity with cross-sectional variation in a country's prior probability of participating in an IMF program (see also Lang 2016). The IMF's liquidity varies primarily because of an institutional rule that requires the IMF to review the financial contributions of its members ("quotas") every five years, and as a consequence of large individual loan repayments.…”

Section: Introductionmentioning

confidence: 99%

Stigma or Cushion? IMF Programs and Sovereign Creditworthiness

Gehring

Lang

2018

SSRN Journal

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IMF programs are often considered to carry a "stigma" that triggers adverse market reactions. We show that such a negative IMF effect disappears when accounting for endogenous selection into programs. To proxy for a country's access to financial markets, we use credit ratings and investor assessments for 100 countries from 1987 to 2013. Our first identification strategy exploits the differential effect of changes in IMF liquidity on loan allocation. We find that the IMF can "cushion" against falling creditworthiness, despite contractionary adjustments resulting from its programs. A second, event-based strategy using country-times-year fixed effects supports this positive signaling effect. A supplementary text analysis of rating statements validates that agencies perceive IMF programs as positive, particularly when they are associated with reform commitments.

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How to evaluate the effects of IMF conditionality

et al. 2018

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Following calls for a more disaggregated approach to studying the consequences of IMF programs, scholars have developed new datasets of IMF-mandated policy reforms, or 'conditionality.' Initial studies have explored how conditions have, inter alia, affected tax revenues, public sector wages, and health systems. Notwithstanding the important contributions of these studies, a methodological quandary arises as to how to quantitatively examine the effects of conditionality, as distinct from other aspects of IMF operations (e.g., credit, technical support, or aid and investment catalysis). In this article, we review and advance these methodological debates by developing an identification strategy for addressing the multiple endogenous components of IMF programs. We begin by surveying the main strategies for studying the effects of IMF programs: matching methods, instrumental variable approaches, system GMM estimation, and variants of Heckman estimators. We then adapt these methods for studying the effects of conditionality per se. Specifically, we utilize a compound instrumental variable design over a system of three equations to address sources of endogeneity related to, first, the IMF participation decision and, second, the conditions included within the program. In Monte Carlo simulations, we demonstrate that our approach is unbiased and performs better than alternatives on standard diagnostics across a range of scenarios. Finally, we apply these methods to investigate how IMF programs impact government education spending as a share of GDP on a sample of 132 developing countries for the period 1990 to 2014, finding exposure to an additional condition results in a 0.05 percentage point decline.

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The Economics of the Democratic Deficit: The Effect of IMF Programs on Inequality

Cited by 51 publications

References 95 publications

The political economy of labor market deregulation during IMF interventions

The political economy of labor market deregulation during IMF interventions

Stigma or Cushion? IMF Programs and Sovereign Creditworthiness

How to evaluate the effects of IMF conditionality

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