Do IMF programs catalyze donor assistance to low-income countries?
- 206 Downloads
Abstract
This study explores whether IMF-supported programs in low-income countries (LICs) catalyze Official Development Assistance (ODA). Based on a comprehensive set of ODA measures and using the Propensity Score Matching approach to address selection bias, we show that programs addressing policy or exogenous shocks have a significant catalytic impact on both the size and the modality of ODA. Moreover, for gross disbursements the impact is greatest when LICs are faced with substantial macroeconomic imbalances or large shocks. Results indicate a sharp difference between the responsiveness of multilateral and bilateral donors to programs. While multilateral donors significantly raise their gross and net disbursements to program countries, the aid allocation by bilateral donors, on both a gross and net basis, does not seem to be affected by programs.
Keywords
IMF-supported programs Official development assistance (ODA) Catalytic impact Low-income countries (LICs) Propensity score matching Aid allocation Aid coordination Bilateral aid Multilateral aidJEL classification
F33 F35 F53 F63 O19Notes
Acknowledgments
The authors would like to thank two anonymous referees, Axel Dreher, Chris Lane, Catherine Pattillo, Olaf Unteroberdoerster, Marco Arena, Wendell Daal, Ermal Hitaj, Mumtaz Hussain, Paulo Lopez, Henry Moone, Nkunde Mwase, Saad Quayyum, Frank Dong Wu, seminar participants at the IMF, and OECD colleagues Brenda Killen, Elena Bernaldo de Quirós, Olivier Bouret, Andrzej Suchodolski for very helpful comments and suggestions. Merceditas San Pedro-Pribram, Liz Baxter, and Kathryn Norris provided excellent editorial assistance. The usual disclaimer applies.
Supplementary material
References
- Acharya, A., De Lima, A. T. F., & Moore, M. (2006). Proliferation and fragmentation: Transactions costs and the value of aid. The Journal of Development Studies, 42(1), 1–21.CrossRefGoogle Scholar
- Aldasoro, I., Nunnenkamp, P., & Thiele, R. (2010). Less aid proliferation and more donor coordination? The wide gap between words and deeds. Journal of International Development, 22(7), 920–940.CrossRefGoogle Scholar
- Alesina, A., & Dollar, D. (2000). Who gives foreign aid to whom and why? Journal of Economic Growth, 5(1), 33–63.CrossRefGoogle Scholar
- Anderson, E. (2012). Aid fragmentation and donor transaction costs. Economics Letters, 117(3), 799–802.CrossRefGoogle Scholar
- Annen, K., & Kosempel, S. (2009). Foreign aid, donor fragmentation, and economic growth. The BE Journal of Macroeconomics, 9(1), 1–30.Google Scholar
- Atoyan, R., & Conway, P. (2006). Evaluating the impact of IMF programs: A comparison of matching and instrumental-variable estimators. The Review of International Organizations, 1(2), 99–124.CrossRefGoogle Scholar
- Bal Gündüz, Y. (2009). Estimating demand for IMF financing by low-income countries in response to shocks. No. 9-263. Washington, D.C.: International Monetary Fund.Google Scholar
- Bal Gündüz, Y. (2016). The economic impact of short-term IMF engagement in low-income countries. World Development, 87, 30–49.CrossRefGoogle Scholar
- Bal Gündüz, Y., Ebeke, M. C., Hacibedel, M. B., Kaltani, M. L., Kehayova, M. V. V., Lane, M. C., … & Thornton, M. J. (2013). The Economic Impact of IMF-Supported Programs in Low-Income Countries. IMF occasional paper No. 277. Washington, D.C.: International Monetary Fund.Google Scholar
- Becker, T., & Mauro, P. (2007). Output drops and the shocks that matter. In IMF working paper 07/172. Washington, DC: International Monetary Fund.Google Scholar
- Berthélemy, J. C. (2006). Bilateral donors’ interest vs. recipients’ development motives in aid allocation: Do all donors behave the same? Review of Development Economics, 10(2), 179–194.CrossRefGoogle Scholar
- Bigsten, A. (2006). Donor coordination and the uses of aid. Working papers in economics, 196. Göteborg University, Göteborg.Google Scholar
- Bird, G. (2007). The IMF: A bird's eye view of its role and operations. Journal of Economic Surveys, 21(4), 683–745.CrossRefGoogle Scholar
- Bird, G., & Rowlands, D. (2002). Do IMF programmes have a catalytic effect on other international capital flows? Oxford Development Studies, 30(3), 229–249.CrossRefGoogle Scholar
- Bird, G., & Rowlands, D. (2007). The IMF and the mobilisation of foreign aid. Journal of Development Studies, 43(5), 856–870.CrossRefGoogle Scholar
- Bird, G., & Rowlands, D. (2009a). In J. M. Boughton & D. Lombardi (Eds.), Finance, development, and the IMF. Oxford University Press: Oxford.Google Scholar
- Bird, G., & Rowlands, D. (2009b). The IMF's role in mobilizing private capital flows: Are there grounds for catalytic conversion? Applied Economics Letters, 16(17), 1705–1708.CrossRefGoogle Scholar
- Bird, G., & Rowlands, D. (2009c). A disaggregated empirical analysis of the determinants of IMF arrangements: Does one model fit all? Journal of International Development, 21(7), 915–931.CrossRefGoogle Scholar
- Bird, G., & Rowlands, D. (2017). The effect of IMF Programmes on economic growth in low income countries: An empirical analysis. The Journal of Development Studies, 1–18.Google Scholar
- Brück, T., & Xu, G. (2012). Who gives aid to whom and when? Aid accelerations, shocks and policies. European Journal of Political Economy, 28(4), 593–606.CrossRefGoogle Scholar
- Bruckner, M., & Ciccone, A. (2010). International commodity prices, growth, and the outbreak of civil war in sub-Saharan Africa. The Economic Journal, 120(544), 535–550.CrossRefGoogle Scholar
- Chamberlain, G. (1982). Multivariate regression models for panel data. Journal of Econometrics, 18(1), 5–46.CrossRefGoogle Scholar
- Claessens, S., Cassimon, D., & Van Campenhout, B. (2009). Evidence on changes in aid allocation criteria. The World Bank Economic Review, 23(2), 185–208.CrossRefGoogle Scholar
- Clist, P. (2011). 25 years of aid allocation practice: Whither selectivity? World Development, 39(10), 1724–1734.CrossRefGoogle Scholar
- Clist, P., Isopi, A., & Morrissey, O. (2012). Selectivity on aid modality: Determinants of budget support from multilateral donors. The Review of International Organizations, 7(3), 267–284.CrossRefGoogle Scholar
- Cottarelli, M. C., & Giannini, C. (2002). Bedfellows, hostages, or perfect strangers? Global capital markets and the catalytic effect of IMF crisis lending. In IMF working paper 02–193. Washington, DC: International Monetary Fund.Google Scholar
- Dabla-Norris, E., & Bal Gündüz, Y. (2014). Exogenous shocks and growth crises in low-income countries: A vulnerability index. World Development, 59, 360–378.CrossRefGoogle Scholar
- Davies, R. B., & Klasen, S. (2015). Of donor coordination, free-riding, darlings, and orphans: The dependence of bilateral aid on other bilateral giving. Courant Research Centre: Poverty, Equity and Growth - Discussion Papers, No. 168.Google Scholar
- Dehejia, R. H., & Wahba, S. (1999). Causal effects in nonexperimental studies: Reevaluating the evaluation of training programs. Journal of the American Statistical Association, 94(448), 1053–1062.CrossRefGoogle Scholar
- Djankov, S., Montalvo, J. G., & Reynal-Querol, M. (2009). Aid with multiple personalities. Journal of Comparative Economics, 37(2), 217–229.CrossRefGoogle Scholar
- Dollar, D., & Levin, V. (2006). The increasing selectivity of foreign aid, 1984–2003. World Development, 34(12), 2034–2046.CrossRefGoogle Scholar
- Dreher, A., Nunnenkamp, P., & Schmaljohann, M. (2015). The allocation of German aid: Self-interest and government ideology. Economics and Politics, 27(1), 160–184.CrossRefGoogle Scholar
- Dreher, A., Mölders, F., & Nunnenkamp, P. (2010). Aid delivery through non-governmental Organisations: Does the Aid Channel matter for the targeting of Swedish aid? The World Economy, 33(2), 147–176.CrossRefGoogle Scholar
- Easterly, W. (2007). Are aid agencies improving? Economic Policy, 22(52), 634–678.CrossRefGoogle Scholar
- Feeny, S., & McGillivray, M. (2008). What determines bilateral aid allocations? Evidence from time series data. Review of Development Economics, 12(3), 515–529.CrossRefGoogle Scholar
- Frot, E., & Santiso, J. (2011). Herding in aid allocation. Kyklos, 64(1), 54–74.CrossRefGoogle Scholar
- Frölich, M. (2004). Finite-sample properties of propensity-score matching and weighting estimators. Review of Economics and Statistics, 86(1), 77–90.CrossRefGoogle Scholar
- Fuchs, A., Nunnenkamp, P., & Öhler, H. (2015). Why donors of foreign aid do not coordinate: The role of competition for export markets and political support. The World Economy, 38(2), 255–285.CrossRefGoogle Scholar
- Gangl, M. (2004). RBOUNDS: Stata module to perform Rosenbaum sensitivity analysis for average treatment effects on the treated. Statistical Software Components.Google Scholar
- Gehring, K., Michaelowa, K., Dreher, A., & Spörri, F. (2015). Do we know what we think we know? Aid fragmentation and effectiveness revisited. Courant Research Centre: Poverty, Equity and Growth - Discussion Papers, No. 185.Google Scholar
- Guillaumont, P., Jeanneney, S. G., & Wagner, L. (2017). How to take into account vulnerability in aid allocation criteria and lack of human capital as well: Improving the performance based allocation. World Development, 90, 27–40.CrossRefGoogle Scholar
- Gutting, R., & Steinwand, M. C. (2015). Donor fragmentation, aid shocks, and violent political Conflict. Journal of Conflict Resolution, 61(3), 643–670.CrossRefGoogle Scholar
- Han, L., & Koenig-Archibugi, M. (2015). Aid fragmentation or aid pluralism? The effect of multiple donors on child survival in developing countries, 1990–2010. World Development, 76, 344–358.CrossRefGoogle Scholar
- Headey, D. (2008). Geopolitics and the effect of foreign aid on economic growth: 1970–2001. Journal of International Development, 20(2), 161–180.CrossRefGoogle Scholar
- Heckman, J. J., Ichimura, H., & Todd, P. (1998). Matching as an econometric evaluation estimator. The Review of Economic Studies, 65(2), 261–294.CrossRefGoogle Scholar
- Hnatkovska, V., & Loayza, N. (2005). In J. Aizenman & B. Pinto (Eds.), Volatility and growth in managing economic volatility and crises: A practitioner’s guide. Cambridge: Cambridge University Press.Google Scholar
- Hoeffler, A., & Outram, V. (2011). Need, merit, or self-interest—What determines the allocation of aid? Review of Development Economics, 15(2), 237–250.CrossRefGoogle Scholar
- International Monetary Fund. (2012). 2011 review of conditionality—Background paper: Outcomes of IMF-supported programs. International Monetary Fund: Washington D.C.Google Scholar
- International Monetary Fund. (2016). The handbook of IMF facilities for low-income countries. International Monetary Fund: Washington D.C.Google Scholar
- Jaramillo, L., & Sancak, C. (2009). Why has the grass been greener on one side of Hispaniola? A comparative growth analysis of the Dominican Republic and Haiti. IMF Staff Papers, 56, 323–349.CrossRefGoogle Scholar
- Kanbur, R. (2003). The economics of international aid. In S. Christophe-Kolm and J. Mercier-Ythier (Eds.), The economics of giving, reciprocity, and altruism. North-Holland.Google Scholar
- Kimura, H., Mori, Y., & Sawada, Y. (2012). Aid proliferation and economic growth: A cross-country analysis. World Development, 40(1), 1–10.CrossRefGoogle Scholar
- Lawson, A. (2009). Evaluating the transaction costs of implementing the Paris Declaration. Concept Paper submitted by Fiscus Public Finance Consultants to the Secretariat for the Evaluation of the Paris Declaration, November.Google Scholar
- Knack, S., & Rahman, A. (2007). Donor fragmentation and bureaucratic quality in aid recipients. Journal of Development Economics, 83(1), 176–197.CrossRefGoogle Scholar
- Mascarenhas, R., & Sandler, T. (2006). Do donors cooperatively fund foreign aid? The Review of International Organizations, 1(4), 337–357.CrossRefGoogle Scholar
- Mercer-Blackman, V., & Unigovskaya, A. (2004). Compliance with IMF program indicators and growth in transition economies. Emerging Markets Finance and Trade, 40(3), 55–83.CrossRefGoogle Scholar
- Minoiu, C., & Reddy, S. G. (2010). Development aid and economic growth: A positive long-run relation. The Quarterly Review of Economics and Finance, 50(1), 27–39.CrossRefGoogle Scholar
- Mody, A., & Saravia, D. (2006). Catalysing private capital flows: Do IMF Programmes work as commitment devices? The Economic Journal, 116(513), 843–867.CrossRefGoogle Scholar
- Molenaers, N., Gagiano, A., Smets, L., & Dellepiane, S. (2015). What determines the suspension of budget support? World Development, 75, 62–73.CrossRefGoogle Scholar
- Morris, S., & Shin, H. S. (2006). Catalytic finance: When does it work? Journal of International Economics, 70(1), 161–177.CrossRefGoogle Scholar
- Moser, C., & Sturm, J. E. (2011). Explaining IMF lending decisions after the cold war. The Review of International Organizations, 6(3–4), 307–340.CrossRefGoogle Scholar
- Mumssen, C., Bal Gündüz, Y., Ebeke, C., & Kaltani, L. (2013). IMF-supported programs in low income countries: Economic impact over the short and longer term. No:13–273. Washington, D.C.: International Monetary Fund.Google Scholar
- Mundlak, Y. (1978). On the pooling of time series and cross section data. Econometrica, 46, 69–85.CrossRefGoogle Scholar
- Nelson, S. C., & Wallace, G. P. (2016). Are IMF lending programs good or bad for democracy? The Review of International Organizations, 1–36.Google Scholar
- Neumayer, E. (2003). The pattern of aid giving: The impact of good governance on development assistance. London: Routledge.CrossRefGoogle Scholar
- Neumayer, E. (2005). Is the allocation of food aid free from donor interest bias? Journal of Development Studies, 41(3), 394–411.CrossRefGoogle Scholar
- Nunnenkamp, P., Öhler, H., & Thiele, R. (2013). Donor coordination and specialization: Did the Paris Declaration make a difference? Review of World Economics, 149(3), 537–563.CrossRefGoogle Scholar
- OECD. (2008). The Paris Declaration on aid effectiveness and the Accra agenda for action. Paris: OECD.Google Scholar
- OECD. (2012). Aid effectiveness 2011: Progress in implementing the Paris Declaration. Paris: OECD.CrossRefGoogle Scholar
- Papageorgiou, C., Pattillo, C., Spatafora, N., & Berg, A. (2010). The end of an era? The medium- and long-term effects of the global crisis on growth in low-income countries. In IMF working papers 10/205. Washington, DC: International Monetary Fund.Google Scholar
- Papi, L., Presbitero, A. F., & Zazzaro, A. (2015). IMF lending and banking crises. IMF Economic Review, 63(3), 644–691.CrossRefGoogle Scholar
- Perry, G. (2009). Beyond lending: How multilateral banks can help developing countries manage volatility. Washington, DC: Center for Global Development.Google Scholar
- Robins, J. M. (2002). Comment on covariance adjustment in randomized experiments and observational studies. Statistical Science, 17(3), 309–321.Google Scholar
- Roodman, D. (2006). An index of donor performance. Center for Global Development, working paper no 67 (revised in 2012).Google Scholar
- Rosenbaum, P. R. (1987). Sensitivity analysis for certain permutation inferences in matched observational studies. Biometrika, 74, 13–26.CrossRefGoogle Scholar
- Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41–55.CrossRefGoogle Scholar
- Steinwand, M. C. (2015). Compete or coordinate? Aid fragmentation and lead donorship. International Organization, 69(2), 443.CrossRefGoogle Scholar
- Steinwand, M. C., & Stone, R. W. (2008). The International Monetary Fund: A review of the recent evidence. The Review of International Organizations, 3(2), 123–149.CrossRefGoogle Scholar
- Stubbs, T. H., Kentikelenis, A. E., & King, L. P. (2016). Catalyzing aid? The IMF and donor behavior in aid allocation. World Development, 78, 511–528.CrossRefGoogle Scholar
- Thiele, R., Nunnenkamp, P., & Dreher, A. (2007). Do donors target aid in line with the millennium development goals? A sector perspective of aid allocation. Review of World Economics, 143(4), 596–630.CrossRefGoogle Scholar
- White, H., & McGillivray, M. (1995). How well is aid allocated? Descriptive measures of aid allocation: A survey of methodology and results. Development and Change, 26(1), 163–183.CrossRefGoogle Scholar