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Journal of Development Economics Vol. 62 Ž2000. 385–421 www.elsevier.


The effect of IMF programs on economic growth
Adam Przeworski a , James Raymond Vreeland b, ) ,1
b a Department of Politics, New York UniÕersity, 715 Broadway, New York, NY 10003, USA Department of Political Science, Yale UniÕersity, 124 Prospect Street, P.O. Box 208301, New HaÕen, CT 06520-8301, USA

Abstract Using a bivariate, dynamic version of the Heckman selection model, we estimate the effect of participation in International Monetary Fund ŽIMF. programs on economic growth. We find evidence that governments enter into agreements with the IMF under the pressures of a foreign reserves crisis but they also bring in the Fund to shield themselves from the political costs of adjustment policies. Program participation lowers growth rates for as long as countries remain under a program. Once countries leave the program, they grow faster than if they had remained, but not faster than they would have without participation. q 2000 Elsevier Science B.V. All rights reserved.
JEL classification: C1; O4 Keywords: Economic growth; IMF; Selection

Our primary objectiÕe is growth. In my Õiew, there is no longer any ambiguity about this. It is toward growth that our programs and their conditionality are aimed. It is with a Õiew toward growth that we carry out our special responsibility of helping to correct balance of payments disequilibria and, more generally, to eliminate obstructiÕe macroeconomic imbalances.

Corresponding author. Tel.: q 1-203-432-6196; fax: q 1-203-432-6196. E-mail addresses: ŽA. Przeworski., ŽJ.R. Vreeland.. 1 Tel.: q 1-203-432-5230; fax: q 1-203-432-6196.

0304-3878r00r$ - see front matter q 2000 Elsevier Science B.V. All rights reserved. PII: S 0 3 0 4 - 3 8 7 8 Ž 0 0 . 0 0 0 9 0 - 0


A. Przeworski, J.R. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421

Michel Camdessus, IMF Managing Director ŽStatement before the United Nations Economic and Social Council in Geneva, July 11, 1990..

1. Introduction International Monetary Fund ŽIMF. programs are controversial. Governments that enter into agreements with the IMF claim that it is for the better, that opposition to them is uninformed or badly intentioned. Yet general strikes, riots, and ransacking of supermarkets manifest that IMF programs mobilize popular resistance. And scholarly opinion is also divided: statistical findings range all over the spectrum of possible conclusions. Hence, our question: What is the effect of IMF programs on growth? The immediate goals of the IMF concern exchange rate stability and balance of payments, and evaluations of IMF programs tend to concentrate on these objectives. Thus, Reichmann and Stillson Ž1978. and Connors Ž1979. found that IMF programs had no effect on balance of payments, while Pastor Ž1987b., Gylfason Ž1987., Khan Ž1990., and Bird Ž1996. reported improvements. Most studies find that Fund programs have no effect on inflation ŽBird, 1996; Edwards and Santaella, 1993; Pastor, 1987b; Gylfason, 1987; Connors, 1979., although Reichmann and Stillson Ž1978. reported an unclear effect, and Killick Ž1995. reported reduced inflation. And while Connors Ž1979., Killick Ž1995., and Pastor Ž1987b. found no effect on current account, Khan Ž1990. and Edwards and Santaella Ž1993. discover that it improves. Yet whether or not the IMF programs have positive effects on these short-term goals, what ultimately matters is whether they induce economic growth and do not concentrate incomes.2 Indeed, the Articles of Agreement state that the mission of the IMF is to ‘‘facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.’’ As we have seen above, the former managing director of the Fund has placed economic growth as the primary objective. But here again the results are ambivalent: while Reichmann and Stillson Ž1978., Connors Ž1979., Pastor Ž1987b., and Gylfason Ž1987. reported no effect, Killick Ž1995. found ambiguous effects, and Conway Ž1994. argued that while growth declines in the first year of a program, the negative effects diminish thereafter.
According to Camdessus Ž1990., the Fund seeks ‘‘high quality growth,’’ not merely ‘‘growth for the privileged few, leaving the poor with nothing but empty promises.’’ Pastor Ž1987a,b., however, found that IMF programs sharply redistribute incomes from labor to capital in Latin America. We intend to pursue the distributional effects in a separate paper.

A. Przeworski, J.R. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421


The standard difficulty in evaluating effects of any policy or program is nonrandom selection ŽHeckman 1988..3 What we observe in the real world are not experiments, which would match the ‘‘treatment’’ and the ‘‘control’’ groups, thus permitting direct inferences about the experimental effects. Indeed, one would hope that governments do not enter into the IMF programs as an experiment. These treatments are costly: at least in the short run, they limit national sovereignty and inflict economic pain. In fact, governments often claim that they are ‘‘going under’’ only because the situation is dire and no choice is left but to ‘‘swallow the bitter pill,’’ ‘‘undergo radical surgery,’’ ‘‘take a horse treatment’’: the lexicon is medical and the operation delicate. Going to the IMF is an act of courage, a demonstration of ‘‘political will.’’ But if countries enter and remain under agreements only when governments recognize that the situation so demands and have the courage to swallow the consequences, the conditions of countries participating in IMF programs are not the same as of those which abstain. And if these conditions are not the same, then the effects of the programs may depend in some part on their inherent consequences and in some part on these conditions. To evaluate the consequences of the programs, one must therefore distinguish the two components. The procedure is inextricably counterfactual: the task is to compare the performance if countries had participated and not participated in the programs under the same conditions and, if selection is nonrandom, we cannot always match the observed cases for these conditions. Hence, we must proceed differently. Moreover, while some of these conditions may be observable, as most economic circumstances are, some may not be. ‘‘Political will’’ is one example. A methodology failing to account for this unobservable variable would overstate the value of participation by attributing the positive effects of ‘‘political will’’ to the IMF program. Furthermore, if such selection occurs, merely controlling for observed variables can increase the bias ŽAchen ,1986; Przeworski and Limongi, 1996.. Thus, we need to understand first why countries enter and leave the IMF programs. Once we do, we can use the methods developed by Heckman Ž1976, 1988. to estimate their effects independently of selection. In the appendices, we present the statistical model of selection and a method for analyzing the effect of programs on performance. These appendices are lengthy and technical but the issues are complex.

Evaluations of IMF programs have long paid attention to selection, from early before–after studies ŽReichmann and Stillson, 1978; Connors, 1979; Pastor, 1987a,b; Killick, 1995. and work comparing countries with and without IMF programs ŽGylfason, 1987; Edwards and Santaella, 1993., to more recent work which corrects for observable determinants of nonrandom selection of program countries ŽKhan, 1990, Conway, 1994.. Yet, none of these studies allowed for the possibility of unobserved factors affecting selection and performance.


. However. When the US went off the gold standard in 1973. Przeworski. from the Fund. According to our data. The first part provides background information about our data. These conditions typically entail fiscal austerity Žcutting government expenditures and increasing taxes. The new system did not need the IMF.. the IMF transformed itself from a currency regulating institution to an international organization involved in the national policies of much of the third world. Upon entering an agreement.’’ the size of which depends on the size of the member’s economy. a member government collaborates with IMF officials to develop policy recommendations. and the organization faced a crisis of purpose ŽPastor.R.388 A. years.. we consider only whether a country is under or not under agreement without differentiation between type of agreement. Fulfilling this function. such time limits on participation are arbitrary. the old exchange system collapsed. The third part provides the results concerning growth. 598 of them Ž88%. To draw on more than 25% requires a special agreement with the Fund. and size of the loan disbursements. 1986.. the structural adjustment facility ŽSAF... The vast experience of countries has been to sign consecutive agree- . 41–2. the IMF’s purposes also included ‘‘providing wmembersx with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity’’ Ž Articles of Agreement . Thus. but the IMF ‘‘sets the tone’’ ŽTaylor. the number of countries under one or another IMF program grew from 21 in 1974 to 52 by 1983. 44 countries signed the Bretton Woods agreement which established the IMF to maintain exchange rates for international free trade. 14. The IMF attaches to these loans conditions which oblige countries to undertake specific policies in order to receive the loan installments. and currency devaluations. Today there are 182 IMF members who are eligible to take out loans Žor technically make ‘‘repurchases’’. The second part analyzes why countries enter and stay under IMF programs. tight monetary policy Žraising interest rates and reducing credit creation. de Vries. are SBAs. 222. There are four main types of IMF agreements: the stand-by arrangement ŽSBA. describes the differences among these arrangements as they relate to the conditions. 1993. Polak Ž1991. but he notes that the fundamental objectives of these programs do not differ. the extended fund facility ŽEFF. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 The article is organized as follows. J. Membership requires a contribution to the Fund. which includes 678 agreements. While SBAs are designed to last 12 to 18 months and the other agreements are supposed to cover 1 to 3 Žor at most 4. 1987a. A member-country can freely draw up to 25% of its quota to address balance of payments deficits. called a country’s ‘‘quota. A brief conclusion follows... and the enhanced structural adjustment facility ŽESAF. particularly since the onset of the debt crisis in 1982. Background: the data set In 1944. 2. Note that in our full sample. timing..

Haiti went under again from 1970 to 1989 Ž27 out of 29 years. Zaire spent 14 straight years in IMF programs Ž1976–1989. as well as Goldstein and Montiel Ž1986. years. taken from the Penn World Tables.. Other recent studies have also failed to report We list the countries.. Out of the 226 separate spells of one or more consecutive IMF agreements during the period from 1951 to 1990. 3. Žii. Consecutive agreements are thus the rule. and IMF agreements in our sample in Appendix D. Peru was under consecutive agreements from 1954 to 1971. 1996 for details.. not the exception. Thus. the availability of data is yet another source of nonrandom selection: it turns out that countries for which information is available differ in some systematic ways from those for which it is not. . an average completed spell lasted 4.A.’’ While our basic data set covers the period between 1951 and 1990 Ž135 countries. found it not to be important. The political data come from the ACLP World PoliticalrEconomic Database Žsee Alvarez et al.. for the total of 4126 country-years. And. J.4 Most statistical analyses reported below are based on 1024 annual observations of 79 countries. Liberia spent 15 years straight Ž1963–1977. . after a ‘‘brief’’ stint of only seven straight years of agreements Ž1961 to 1967. 111 of them spanned four or more years. We consider such consecutive agreements as a single spell of remaining ‘‘under. These tests are reported in Appendix C... lasting on average 5.. all for the post-1970 period. discovered that a balance of payments deficit predicts participation. Knight and Santaella Ž1997. A member shall be entitled to purchase the currencies of other members from the Fund in exchange for an equivalent amount of its own currency subject to the following conditions: .’’ found in Article V. we examined them using various stripped versions of the selection model. for example. Przeworski. measured as total annual growth of output. Most of the economic data used in this article come from the World Bank. While Santaella Ž1996.R. Section 3 of the IMF Articles of Agreement : Žb. Yet a balance of payments deficit is not sufficient to explain agreements. the member represents that it has a need to make the purchase because of its balance of payments or its reserve position or developments in its reserves.. According to the ‘‘Conditions governing use of the Fund’s general resources. South Korea. To test the robustness of our findings. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 389 ments. one might not expect controversy in predicting participation. Selection Since a balance of payments deficit or a reserves crisis is the prerequisite for signing an IMF agreement.3 years. between 1971 and 1990 these spells were longer.7 years.. The exception is growth. During the entire period between 1951 and 1990. some information is not available for several countries and years. 4 . and Panama from 1968 to 1987. spent 13 years from 1965 to 1977 under consecutive agreements.

but because they want conditions to be imposed ŽSpaventa. find that high debt plays a role in entering programs as do Knight and Santaella Ž1997. entered an IMF agreement in 1983 when its foreign reserves reached their strongest position ever: 4. Turkey signed an IMF agreement in 1968 with reserves averaging 9. while the IMF signs most of its agreements with countries facing balance of payments deficits. The Turkish government signed again in 1969 when reserves were 11. Edwards and Santaella. However. Uruguay entered a 1-year arrangement in 1990 when its reserves averaged 7.. it signed 32% of them with countries running an overall balance of payments surplus the year preceding the agreement. Edwards and Santaella Ž1993.390 A. Przeworski. Knight and Santaella Ž1997. As Stanley Fischer notes. And after 8 years of consecutive participation in IMF programs. J. and countries without agreements hold stronger reserves. Regarding inflation. for example. and Goldstein and Montiel Ž1986. Typically countries that participate in IMF programs have low reserves. and Conway Ž1994. averaging 2.7 times monthly imports.. 5 . more than double the average reserves of the rest of Latin America. In this view. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 significant findings on balance of payments ŽBird. Yet governments may enter into an IMF agreement not necessarily for a loan. finding it not important.. many countries enter and remain under agreements with strong reserves. and Conway Ž1994.8 times monthly import requirements. Stein.5 Why do countries enter into agreements with the IMF when they do not need foreign exchange? It is often assumed that. countries had surpluses both the year before and the year of the agreement. governments will avoid the Fund if they do not need a loan.R. Yet. We find the same with regard to the ratio of international reserves to monthly import requirements.6 times monthly imports. . 1991. showing that it is significant. an overvalued exchange rate.64 times monthly imports. and then signed again in 1970. 1993. 1986.54 times monthly import requirements. Conway. Putnam. Ghana. we do not find these variables to have significant effects.. Vaubel. as reported below. governments accept conditions only when they need the IMF loan. 1988. but Knight and Santaella Ž1997. In 20% of agreements. but Santaella Ž1996. 1994. 1996. The importance of terms of trade is also a subject of divergent findings. found inflation not to be a significant predictor of agreements. We do. with Conway Ž1994. on the average 3. 1992. . 1993.7 times monthly imports. Santaella Ž1996. 1983. however. According to our data. ‘‘Policy conditionality can be interpreted as a ... penalty. 1986. Other economic variables have also failed to provide a complete picture.7 times monthly imports. Edwards and Santaella.. Portugal entered into a 3-year IMF program in 1983 with foreign reserves averaging 9. as seen from the viewpoint of the borrower country’s policy makers’’ ŽFischer 1999. Bird Ž1996. and Santaella Ž1996. and low GDP growth. summarizes the consensus in the literature about variables that increase the likelihood of an IMF program: low levels of development. Remmer. because IMF agreements limit national sovereignty by imposing specific conditions. found that countries entering IMF programs had experienced increasing inflation.

If the government and the Fund always collude. both the government and the IMF must want to do so. Dixit. but we do not neglect the fact that the IMF is constrained by its mandate to promote international financial stability. Our statistical model. we study participation in IMF programs as a Markov process ŽAmemiya. IMF’s decision to terminate it. 1996. who argues that the Fund seeks to maximize its budget. Governments are more likely to participate in IMF arrangements when foreign reserves are low. 1985. 1995. contrary to what the IMF advertises — that SBAs are intended to last 1 to 2 years and the other programs 3 to 4 — countries remain under agreements an average of 4 to 5 years. Ž3. 1991. the IMF must make decisions separately from governments. the annual government budget surplus as a proportion of GDP. IMF’s decision to seek an agreement. government’s decision to terminate an agreement. We agree with Vaubel Ž1986. Ž2. 1999 for details. Suppose that a government wants to restructure public finances but faces tough opposition Žsee Vreeland. We see the Fund as motivated by both technocratic and bureaucratic concerns. government’s decision to seek an agreement. As we noted above.A... the average annual foreign reserves in terms of monthly imports. we include RESERVES. participation in an IMF program is a joint decision ŽKnight and Santaella 1997. Hence. and without this threat. Przeworski. and they may have different reasons.. Even though the government risks that the opposition will accuse it of ‘‘selling out’’ to the Fund and thus faces political – ‘‘sovereignty’’ – costs. . J. the IMF agreement may enable the government to push through policies that otherwise would have been rejected. Thus. identifies the parameters of the variables that affect these decisions ŽTable 1. Because the decisions of the government and the Fund are separate.R.. we include DEFICIT.. A second complication is that the decisions to enter an agreement and the decisions to terminate it may have different determinants. To measure a government’s need for a loan. four decisions are entailed in the interaction between a particular country and the Fund: Ž1. Turning down the policy is no longer a rejection of the government. the threat that the IMF will impose rejection costs upon a country is not credible. but a rejection of the IMF. Tying the government’s budget proposal to the conditions of an IMF agreement raises the costs for the domestic constituencies of rejecting the proposal. the government gains no bargaining leverage. which is costly because it sends a negative signal to creditors and investors. Note that in order for this strategy to be effective. Why does participation continue and why does it end? To distinguish between these questions. the IMF’s decision must be independent from the government. presented in Appendix A. To test whether governments turn to the Fund to lower the budget deficit. RESERVES has a significant negative effect on the probability that the government will enter into an IMF agreement. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 391 Bjork. and Ž4.. For a country to enter and to remain under IMF agreements.

370 0.39 0. Przeworski.17 y0.277 0.288 Coefficient y0.E.38 y6.475 0. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 Table 1 Determinants of program participation Determinants of entering GoÕernment Variable CONSTANT Determinants of remaining Coefficient y2.91 y0.R.273 Mandate Budget Negotiation costs BOP NUMBER UNDER REGIME . J.95 1.329 0.33 S. 2.241 0.44 0.83 y0.14 y0.73 0.016 0.260 Coefficient 2.38 y0.E.789 0.178 0.87 IMF S.190 0.922 0.429 0.E.592 0. 0.27 y0.41 y0.36 0.06 0.266 0.84 y0.26 y0.516 1.E.36 0. 0.611 0.212 0. 1.29 0.230 0.352 Loan Conditions Rejection costs Sovereignty costs RESERVES DEFICIT DEBT SERVICE INVESTMENT YEARS UNDER NUMBER UNDER LAGGED ELECTION Variable CONSTANT Coefficient 2.01 S.268 0.43 S.65 y0.424 0.678 1.01 y0.392 A.

RESERVES: average annual foreign reserves in terms of monthly import requirements.Frequencies of actual and predicted outcomes Actual Predicted 0 0 1 TOTAL Number of observations Log likelihood function Restricted log likelihood Chi-squared Degrees of freedom Significance level 484 66 550 1024 y355. DEFICIT: measured as surplus of government budget as a proportion of GDP. 1.77 y705. dummy variable lagged participation status. . Przeworski. as a proportion of GDP.39 23 0. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 393 Variables: CONSTANT: to enter.46 699. YEARS UNDER: sum of past years under agreements for a country. J. REGIME: Dummy variable coded 1 for dictatorships and 0 for democracies. INVESMENT: real gross domestic investment Žprivate and public. LAGGED ELECTION: dummy variable coded 1 for a lagged legislative election and 0 otherwise.R. to remain. NUMBER UNDER: number of other countries currently under IMF agreements. DEBT SERVICE: debt service as a proportion of GDP. BOP: overall balance of trade in constant 1987 US$.0000 1 75 399 474 Total 559 465 1024 A. All variables are lagged 1 year.

a dummy variable coded 1 for dictatorships and 0 for democracies. hoping that the stigma of signing an agreement will be forgiven or forgotten before the next elections. Governments are more likely to enter agreements early in their electoral terms. The only variable which has a significant effect on the government’s decision to continue participation in an IMF agreement is NUMBER UNDER. no other variables we tested affected the government’s decisions to enter or leave: TERMS OF TRADE. 7 There are. By bringing in the IMF. the number of past years a country has spent under IMF agreements. is included to test whether the Fund is concerned with fulfilling its mandate of promoting world financial stability. Governments with high deficits are more likely to turn to the Fund.7 The significant effect of this variable shows that the IMF seeks to sign more countries when few are participating.’’ Thus we include ‘‘sovereignty cost variables’’: YEARS UNDER. the sensitivity of a country to the decisions of creditors and investors. To capture rejection costs. but the Fund keeps such information secret. This may be because they are easier to negotiate with. has a significant effect on a government’s decision to enter. PER CAPITA INCOME. the annual debt service as a proportion of GDP. INFLATION. BOP. and a dummy variable for post-1982 years. following the World Bank convention. Governments have private information about the 6 In this specification. EXPORTS Žas a capacity to import. When DEBT SERVICE is high. when the budget constraint is less binding. J. FOREIGN DIRECT INVESTMENT. a dummy variable coded 1 if the previous year had a legislative election and 0 otherwise. BOP. a government is more likely to enter into an IMF program. A government is more likely to continue participation when others do so. Rejection costs also matter. None of the economic variables matter.394 A. the more likely the Fund will provide a country with an arrangement. we include three variables: BOP. NUMBER UNDER.R. a government risks being accused of ‘‘selling out. It has a positive effect. The effect of the above variables on the government’s decision to remain under agreements is surprising. a country’s overall balance of payments in constant 1987 US dollars. LABOR FORCE GROWTH.. and INVESTMENT. a government is more likely to enter an IMF arrangement. and LAGGED ELECTION. When many governments in a country’s past have been under IMF agreements and when many other countries around the world are participating. and REGIME. WORLD PER CAPITA INCOME GROWTH. we include DEBT SERVICE. NUMBER UNDER. real gross domestic investment as a proportion of GDP. the number of other countries around the world currently participating in an IMF agreement. NUMBER UNDER is a proxy for the IMF budget. CURRENT ACCOUNT. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 DEFICIT Žwhich is measured as budget surplus. . REGIME. better measures for the IMF budget. EXCHANGE RATE.6 For the IMF. OUTPUT GROWTH. and governments typically turn to the IMF when INVESTMENT is low. Przeworski. The larger a balance of payments deficit in absolute terms. indicates the IMF is more likely to sign with dictatorships. of course. CAPITAL STOCK GROWTH.

argues. All that matters is whether balance of payments deficit continues to be large. But some governments also want conditions. EXPORTS. Governments with high deficits enter into IMF arrangements to have fiscal discipline imposed upon them.8 Hence. Regarding the decision of the Fund to retain countries under its programs. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 395 policies domestic constituencies will accept and can use this information in IMF negotiations to have their preferred policies imposed through the agreement.04% Ž N s 465. only BOP has a significant effect.: a difference of –2. The Fund cares about the absolute size of a balance of payments deficit. while countries not under the programs at 4. Note that in 97 cases countries remained under IMF programs even though they had decent reserves and low deficits: those countries grew by 1. Growth observed under IMF programs was lower regardless of the conditions under which countries participated.. They are likely to pursue this strategy when the costs of rejecting the IMF are high — when they are sensitive to decisions of creditors and investors — provided sovereignty costs are low.39% Ž N s 559.02% slower than countries which enjoyed the same conditions while not being subject to these programs. J. Przeworski. and the post-1982 dummy variable. WORLD ECONOMIC GROWTH. CURRENT ACCOUNT. EXCHANGE RATE. Such a strategy is more effective in democracies.35%.A. Countries participating in IMF programs grew at the rate of 2. FOREIGN DIRECT INVESTMENT. the IMF’s costs of negotiation have been met. Beyond this. PER CAPITA INCOME. governments typically seek IMF programs when they need a loan. As Schelling Ž1960. 28. In Table 2 we classify these conditions by the size of the domestic deficit and of foreign reserves. ‘‘the ability of a democratic government to get itself tied by public opinion may be different from the ability of a totalitarian government to incur such a commitment. CAPITAL STOCK GROWTH.024 annual observations for which we can specify the full selection model was 3. The effect of programs on growth The average rate of growth of total income among the 1. LABOR FORCE GROWTH. DEBT. But even countries 8 Other variables that we tested were not significant in this specification: TERMS OF TRADE. . INFLATION. and thus they make easier negotiation partners.33%. Once negotiations have been concluded. The question is whether this difference is due to the conditions the countries faced or to program participation. This is not surprising. where opposition may have more power.’’ Dictatorships are less constrained by public opinion and competitive elections.R. it seeks to maximize its budget by signing as many countries as its resources allow. 4.

‘‘Bad’’ deficit: government budget surplus Fy5% of GDP. Guyana 1982 Deficit y0. good Bad.65 7. bad Total 4.20 3. Verde 1984.96 y12.25 y9.89 2.65 4.84 y11.87 y7.08 5.99 y1. J. bad Bad. Bisau 1987. Zambia 1989 Extreme Botswana 1987.26 3. good Good. Ghana 1979 Mauritania 1988.396 A. Dom.39 Under Good. . Rep. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 Table 2 Growth according to observable conditions Žreserves and deficit. India 1981 Ivory Cst 1989.34 1.95 0. Iran 1977 Rwanda 1988. Malta 1975 C.R. Gabon 1981 G. Congo 1989 ‘‘Good’’ reserves: foreign reserves ) 2 times monthly imports.83 3.65 97 89 97 182 465 Philippines 1994.34 4. good Good. 1975 Nicaragua 1982.76 Debt service 3. Nepal 1984 Nigeria 1979.19 4. Przeworski.54 6.46 6. Panama 1977 Togo 1989. Uganda 1988 Jordan 1989. bad Bad. good Bad. ‘‘Bad’’ reserves: foreign reserves F 2 times monthly imports. Uruguay 1980 Mexico 1988.76 5.22 4.14 1. bad Total Not under Growth 5. ‘‘Good’’ deficit: government budget surplus )y5% of GDP.30 Reserves 5.29 3.19 1. Benin 1979 Guyana 1986. Ecuador 1970 Solomon 1982. deficit Good.90 N 248 121 102 88 559 Examples Typical Columbia 1988.47 4.04 y2.07 y11. Reserves.50 3.35 y2.06 0.09 3.36 1.10 6.40 2. Iran 1981 Cameroon 1987.00 2.51 y5.

The model is estimated in growth form separately for j s 1 if the country is observed under agreement and j s 0 otherwise.53. A technical justification of these procedures. J. y0. the vector of independent variables characterizing each country at each time is multiplied by the parameters characterizing the ‘‘under’’ and the ‘‘not under’’ samples.R. they would have grown at the average rate of 2.08 2.A. For two. due originally to Heckman Ž1976.53. to which we refer as ‘‘barebones’’ ŽTable 3. I ˙rY s CONSTANTj q a j Ž K ˙rK . a growth model is estimated separately for countries observed under and those not under the agreements. they would have grown at the rate of 3.35.024 sample is y1.53 Program effect y1.79% faster. q b j Ž L ˙ rL . of the observed difference of y2. Hence.82 is due to the economic conditions and y1.00. The growth model used is a simple production function of the form Y s AF Ž K .00 Not 2.. L. I Ž . Przeworski. while countries facing bad conditions grew slower.33 4.70 3. but the effect of IMF programs was adverse to growth independently of these conditions.53 to the effect of IMF programs.63 y1. 1988. If all countries in this sample were under IMF programs every year.52 3. this difference is very close for the cases actually observed under and not under: Observed as Under Not All Hypothetically as Under 0. The parameters resulting from this estimation are not biased by selection. where lG i and l 1 called hazard rates are the instruments used to control for the effects of selection. First. This procedure generates values of growth expected in the two situations independently of selection. IMF programs still appear to reduce growth. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 397 with low reserves and high deficits did better if they did not participate: their growth was 1.44 y1. For one. If none of the countries ever had an agreement. The countries that had IMF agreements experienced less favorable conditions.53 . When selection is taken into account. Finally. for each country during each year. unobserved variables may be responsible for the observed differences in performance. Second. q uG j lG Y j q uI j lj . Indeed. the distribution of conditions is not the same for cases observed under and not IMF agreements and those observed not under. Thus. The average effect of program participation predicted by the full selection model and the barebones growth model in the 1.. s AK a L b . participation in IMF programs lowered growth under all conditions. Hence. we proceed as follows. so that the difference between them is the net effect of IMF programs. these selection-unbiased values are averaged over all countries. with instruments to control for the effects of selection. Yet matching the observed cases can be misleading. is included in Appendix B.

when countries are observed under agreements.14 0.01 2. Hence.38 0. the difference between the constants becomes large.01 0. Yet.82 Standard error y1.99.73 y0.19.48 6.15 Note: F-test is for the restriction a q b s 1.15 2.07 0.02 0. The reputation of a government’s officials or advisors. indicating that the effects of unobserved variables operate through channels other than the supply of capital and labor Žsee Heckman.47 0. Przeworski.39 7.13 0. J.R. the coefficients on G I the selection instruments.09 0.. are large and significant.29 3.44 0. p s Ž0.04 6.02 0.31 1.00 2. Observed means 1. the constants are almost the same for the observations ‘‘not under’’ Žy0.17 2. reported in Appendix C. One candidate is the ‘‘political will’’ of countries participating in IMF programs. p s Ž0. and ‘‘under’’ Žy0.89 0.00.68. model specifications and samples.12 Selection-corrected y0. Under different selection mechanisms. l1 and l1 .68 4. ˙rK K Standard error ˙ rL L Standard error lG Standard error lI Standard error ˙r Y . .93 465 1.88. EŽ Y Standard deviation Observations Durbin–Watson Adjusted R 2 F-test 2. generate the same qualitative results.38. The difference in the predicted growth rates is due almost exclusively to the constants.44 0. Experiments with other specifications and different samples..01 4. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 Table 3 ‘‘Barebones’’ growth regression by participation status Under Selection-corrected CONSTANT Not under Observed means 1. Hence. 155. there are grounds to suspect that some unobserved factors influence both program participation and growth. omitting these instruments strongly biases the constant. the effect ranges from y1.75 0.80 0.398 A.9 Several students of the IMF have argued 9 ‘‘Political will’’ is merely one possible unobserved variable that affects both selection and performance.23 2. its negotiation posture.53 0. or the population’s trust in government may all lead a government to seek an IMF agreement and also affect growth.50 559 1.69 y0.07 to y3.00 7. When growth equations are estimated without selection instruments.00 5.26.56 0.71 0. When corrected for selection. 1979.73 0.23 0.59 1.53 5.

Political will may make countries more likely to continue participation and to grow.654 2. countries that emerge from IMF Fig.786 3. or whatever else the unobserved factors may be.943 y5. Moreover.521 3.979 y4.339 399 that agreements may break down because of a lack of ‘‘political will’’ ŽEdwards.858 2. 1999.654 2.180 y7. J.750 2.101 Deficit y6.135 4. and the balance of payments is improved. 1991.A. Przeworski.714 2.895 2. Nelson.270 7.973 4.100 y5.219 3.301 4. Contrary to Conway Ž1994. Observed growth before and after participation.860 2. Killick. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 Table 4 Growth according to transition type Observations of countries Never under a spell Before spells Before and between spells Between spells Between and after spells After spells During spells N 82 142 346 204 335 131 465 YG 5. deficits are eliminated or reduced..994 6.493 5.653 3. growth will resume. But the standard argument in favor of these programs is that once the economy is stabilized.356 2. 1. 1995.048 y5.042 KSG 9.107 6.802 Reserves 5.619 7.010 LFG 2.R.793 2. This argument is often only implicit and it is ideological: there are no good theoretical reasons to believe that a balanced budget and foreign account are sufficient for growth to occur.416 4. not only are highly motivated governments more likely to continue IMF programs but the IMF is also predisposed to keep them.711 2. the same countries would have grown faster not participating in the IMF programs.792 y4. Yet while political will makes countries that participate grow faster than would participating countries not endowed with this will. Participation in IMF programs calls for several measures that reduce growth in the short run. . And it appears to be false.118 3..

53 y1. 0.43 4 Growth N Ž0.49 10.46 5.62 3.50 5. Ž10.82 4.38 y1. 3.99 y1.44 y1.84 y1.38 y1.65 .61 2.46 5.29 9. Ž49. Ž24. Ž18.85 y1.42 y1.56 3. Ž7.47 y1.90 y1.71 y1.50 4. Ž7. Ž23.78 y1.53 y1. Ž4.80 y1. 5.47 6.49 5.57 3. Ž17.60 y1.22 y1. Ž29.44 5.50 3. J. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 Table 5 The experience over time of countries that participated in IMF programs Consecutive years participating Years since leaving the IMF program 0 1 2 Growth First Second Third Fourth Fifth Sixth Seventh Eighth Cumulative annual growth for 8 years Žweighted average.49 5.42 4.60 y1. Ž66.45 y1.76 y1. Observed If participation had continued 2.10 y1.04 6.62 y1. Ž4.72 3. Ž9.55 5.52 5.50 5.18 y1.93 y1.45 5. Ž14.63 2. Ž11. Ž3.26 y1.47 y1. Ž7.46 5.64 1. Ž16.73 y1.81 y1.R.15 y1. Ž5. Ž5. Ž37.59 1.39 4. Ž8.59 1.15 y1.06 y1.43 6.400 A.63 2.66 y1.63 2.50 1. Ž25.19 y1.49 4.29 y1.81 y1.76 y1.64 2. Ž2.47 5.63 1.80 y1.59 2.39 y1. Przeworski. Ž82. Ž18.43 y1.90 y1.56 6.38 Cumulative growth over next 4 years Žweighted average.40 y1.66 2.37 5.04 y1.61 4.51 y1.03 y1.82 y1. 5.85 5.48 6.50 2. Ž15. Ž25. 3. Ž9. Ž5.92 y1.61 y1. Ž15. Ž6.63 N Ž82.62 2.42 y0.48 Growth N Ž0.50 y1. 4.48 y1.47 Growth N Ž0.48 4.51 y1.39 5. Ž9.09 y1.50 3 Growth N Ž0.60 y1.57 y1.42 4.70 y1. Ž14.02 y1. Ž14.96 y1.

60 4.63 2. Ž0.90 y1. 401 . Ž32.50 Ž0. Ž0. Ž0. Ž0. Ž0.56 y1. Ž0. Ž0.17 y1. Ž0. Ž9.70 2. Ž0. Ž7.06 y1. Ž43. Ž0.16 y1.81 2. Ž0. Ž0.25 y1.Ninth Tenth Eleventh Twelfth Thirteenth Fourteenth Fifteenth Cumulative annual growth for 15 years Žweighted average.68 y1. Ž10. 6.70 1. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 Top row for each consecutive year of participation: the observed rate of growth. Ž465. Ž0. Przeworski.71 2.55 Ž0. Ž0.R. Ž0. 4. Ž5. Ž0. 3. Ž0.76 y1. Ž0. Ž0. Ž38.04 y1.49 Ž0.75 y1.66 A. Ž0. 2.71 2. Ž61.73 y1.27 Ž0. Ž0. Ž0.63 Ž14.95 y1.37 y1. Ž4.47 2. 4. Ž0. J. 1.56 1. Ž0.64 y1.67 y1. Bottom row for each consecutive year of participation: the estimated effect of IMF programs on growth if the country participated. Ž6.

There were 82 episodes of participating at least 2 years.62 faster during this year. Take the second year under. Note that these observations are right-hand. Does it matter for future growth how long countries stay under the programs? Table 5 shows the observed rates of growth of all countries that ever entered and left IMF programs and the hypothetical differences described above for each consecutive year during and after program participation. Countries which never experienced IMF programs grew the fastest. and if these countries had not participated. J. But their observations are few. Thus both the observed and the hypothetical . Their comparison shows that for any number of years already under the program. one through eight.90. And. and countries currently participating Žwhich we stylized to last 5 years. the latter are somewhat lower. the observed rates of growth during the next four years were lower if a country remained under than if it left. 1 shows a stylized picture of the experience with participation. they would have grown 1. we classify the observations according to their experience of participation. Since this table is somewhat complicated.. but not left-hand. it bears an explanation. Eye inspection of these numbers appears to indicate that countries that emerge from longer spells grow somewhat faster. Fig. Statistical analysis confirms these visual impressions. so that little can be inferred from these numbers. When a variable measuring the length of the past participation spell is added to the growth model for countries which are not under. censored: they reflect all the prior experience but end in 1990. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 programs do not grow faster than they did before having entered them or faster than countries that never entered. The next four columns of this row show the rates of growth observed during the subsequent 4 years for countries that left the program after 2 years and the hypothetical effect if participation had continued. They show the weighted average rate of growth during the subsequent 4 years of countries that left the program after different numbers of years with that of countries that continued to participate four more years. the mean rate of growth during the second year of participation was 1. In Table 4. it seems that duration of programs does not affect growth once a country leaves them. The selection-corrected. But the most relevant comparison is of growth before and after program participation. The three horizontal lines show the average growth rates of countries that never participated. Both ‘‘before’’ and ‘‘after’’ growth rates exhibit wide swings and no trend emerges once countries leave programs. Perhaps the best way to conclude is to point to the last two columns of Table 5. Indeed.402 A. about the average spell.R. for any combination of the ‘‘before’’ and ‘‘after’’ growth rates. Hence. whether or not we include cases in which a country would turn to the IMF again Žthose cases observed ‘‘between spells’’. countries that were currently not participating. hypothetical effect of the program is also always negative. Przeworski. consider first the observed patterns. it is never significant. program participation certainly does not accelerate growth. Again. Neither can we detect any trend once countries leave a program.

Governments facing economic difficulties adopt IMF programs either because they are desperate for foreign reserves. and samples. In its most recent discussion of issues related to conditionality and program design. We believe to have shown. ‘‘Political will’’ may just lead governments astray. 1998. or both. Przeworski. question than the effect of IMF programs. Hence. in . These programs reduce growth while countries remain under and do not return benefits that would compensate the losses once they leave. 13 . reduce deficits. argued that IMF programs induce governments to save on public investment Žsee also Tanzi and Davoodi. J. Tanzi Ž1989. are yet to be developed. Our results indicate that countries that do not enter into IMF programs grow faster than those that do even when both groups face high domestic deficits or foreign reserves crises. dated October 1993 Ž IMF SurÕey: Supplement on the IMF 1993. our conclusions are the following. 5.. Hence.R.A. then the culprit is austerity policies per se. pointed out that the high real interest rates induce good firms to shut down along with bad ones. with nefarious consequences for growth. if soliciting IMF conditionality is just a way to impose domestically unpopular austerity policies. leaving the program rather than continuing to participate. on many occasions. Conclusions Our findings appear robust to the selection mechanism. and more fundamental. This is a broader. at least during the next 4 years. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 403 differences indicate that countries are better off. These effects seem to be avoidable. Since our analysis ends in 1990. one may wonder whether the IMF has modified the designs of its programs since then. some of the sharpest critiques of these programs are intramural. In the last official statement we discovered. participation in IMF programs reduces growth while a country remains under and has no salutary effect once a country leaves. so the IMF has an important role to play. These conclusions are not intended as a blanket indictment of the IMF. specification of growth equations. The question whether or not austerity policies are necessary to restore growth is beyond the scope of this paper. and at the same time do not hurt growth. it appears that programs that stabilize inflation. Indeed. rather than the fact that they result from IMF agreements. The question is whether coping with these crises must necessarily reduce growth. We could find no evidence that it has. improve balance of payments. Balance of payment crises and exchange instability are facts of life. Blejer and Cheasty Ž1989. however. the Fund reported that ‘‘The Executive Board undertakes periodic reviews of conditionality and. it has adjusted the policies and practices relating to the use of the IMF’s resources. or because they want to use the IMF as a foil to reduce budget deficits. When matched for exogenous conditions. that if growth is the primary objective then IMF programs are badly designed. However..

s pN U . Elisabeth Wood. and Si t s‘‘Not Under’’ otherwise. t to designate individual country-years. i t . Manuel Pastor.. i t q Ž pU U . i t pU U . ty 1 q pU U . With lagged participation status Ž Si . David Rowe. Ni . David Denoon.e. 10 Ž A1. pŽUi t . ty 1 where Ui . Similarly. Appendix A. Similarly. ty 1 pU N . i t s 1 y pU U . i t s 1 y pN U . Ni . one can describe participation as a first-order Markov process:10 p Ž Ui t N Si . ty 1 . Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 July 1991. and the probability that Si t s Not Under as pŽ Ni t . J. Jennifer Gandhi. These transition probabilities vary across time and country. i t y pN U . ty 1 . . and these transition probabilities.. is thus p Ž Ui t N Si . i t Ni . Si t s‘‘Under’’ if country i is under agreement at time t . write the probability that Si t s Under as pŽUi t . i t Ui . i t . i t Ni . The probability that participation ends at time t is thus pU N . and thus are subscripted i . ty 1. ty 1 is an indicator variable set equal to 1 if country i was under at time t y 1. i t pN N ... Ui . s pN U . which the Board adopted in 1979. the Executive Board affirmed that the current guidelines on conditionality. Martin Edwards. and 0 otherwise.404 A. ty 1 . p Ž Ni t N Si . Dynamic bivariate probit model with partial observability Let Si t denote participation status of country i at time t . Przeworski. i t denote the probability that country i enters an agreement at time t Ži. and the anonymous reviewer. The probability that country i does not sign at time t is pN N . To simplify notation. Chapter 11. ty 1 . Let pN U .’’ Acknowledgements We appreciate comments by Jess Benhabib. Alastair Smith.R. ty 1 s pN U . i t denotes the probability that country i stays under at time t. The probability of participating at time t . This characterization of a first-order Markov process follows Amemiya 1985. that it goes from ‘‘not under’’ at time t y 1 to ‘‘under’’ at time t . i t Ui . ty 1 s 1 y Ui . i t . remain broadly appropriate. ty 1 . ty 1 is a dichotomous variable set to 1 if country i was not under at time t y 1 and 0 otherwise. pU U .

we write the value of participation as the latent regression: X G X G ) G d iG t s g x i . we can write the probability of entering an IMF agreement as X I pN U . where the effect of the vector of variables x iI. is the CDF of the standard normal distribution. Ž A4. ty 1 X X Ž A6. x iG . ty 1Ui . . i t s F Ž g X x iG . ty 1 q b X x iI. x i . F Ž m x i . X X Ž A5. x i . Ž A7. ty 1 k x i . ty 1 s 1. We define the value of an agreement to the IMF with a similar equation. are captured by g if the country was not under an agreement at time t y 1 and by if the country was under. Ž A2. ty 1 q Ui . ty 1 . ty 1 q ÕiIt . ty 1 q Õi t . The effect of unobserved variables determining the value of participation for the government is captured by ÕiG t . d iG t ) 0. which we assume to be normally distributed. s F Ž g X x iG . ty 1 . J. ty 1 .. ty 1hX x iI. as a shift for convenience. The probability of continued participation can be written as: I pU U . = F Ž mX x iI. For the government’s decision. where F ŽP. ty 1 q k x i . where the effects of the vector of variables determining the value of participation. as will be seen below. . i t s F Ž g q k . s F Ž g X x iG .: X I p Ž Ui t N Si . yields Eq. ty 1 X I yF Ž g X x iG . ty 1 . ty 1 . ty 1 . Ž A3. ty 1 . ty 1 is captured by the vector m if Ui . Substituting Eqs.R. if Ui . Unobserved effects are captured by ÕiIt . x iG . ty 1Ui . also assumed to be normally distributed. ty 1 q Ui . We write Žg q a . ŽA1. ŽA4. ty 1 . can be rewritten in a simplified form: X G p Ž Ui t N Si . Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 405 and the probability of not being under agreement at time t is the complement of the above to 1. ŽA6. However. ty 1 . ty 1 . F Ž m x i . ty 1 . . F Ž m x i . ty 1 F Ž m q h . ty 1 s 0 and by Ž m q b . I q F Ž g q k . If we assume the unobserved variables that influence the government and the IMF are independent. The likelihood function can be formed by using the above Eq. ŽA6. Eq. ŽA6. ty 1 F Ž m q h . and ŽA5. after some tedious algebra. d iIt) s mX x iI. into Eq. 4 Ui . The decisions to enter and to continue IMF agreements are joint decisions between a government and the Fund.A. x iG . Przeworski. The government wants to be under an IMF agreement if and ) only if the value of participation is positive. ty 1 .

3. ty 1 q Ui . and h . Ui t i. d I ) ) 0 . then the model cannot be identified. d G ) )0. ty 1 q Ui . Ž B2. ty 1h x i . ŽA2. . Hence. Write the regression equations as Žsuppressing the i. F Ž m x i .t X G = 1 y F Ž g X x iG . the value expected in the sample differs from the population value by the conditional expectations of the error term given what we observe.. in Appendix A. ty 1hX x iI. On the other hand. d I ) )0 . ÕiG t or Õi t . X s b1 x q E Ž e1 N d G ) ) 0. The expected value of y 1 for the observed sample is E Ž yu N x . Przeworski... is the conditional expectation of e1 given that y 1 is observed. where EŽ e1 N d G ) ) 0. then e1 is correlated with either Žor both. Ž1 y U i t . Y1 is observed. where j s 1 if the country-year observation is ‘‘under’’ agreement. ty 1 . s b1 Ž B3. with the population density f Ž y N x . ty 1 . ty 1 q Ui . it is sufficient that there be at least one variable not in common between X G and X I. t subscripts. ty 1 q Ui . If the vectors X G and X I contain exactly the same set of variables. the expected value for the population is X x. which can be estimated by a canned version of the Abowd and Farber Ž1982. ty 1 . Assume that y is a function of x . j s 2. the effects of unobserved variables on the respective decisions of the government and the IMF to participate Žfrom Eqs. d I ) ) 0. To identify the parameters g . and ŽA3. yj s b jX x q e j .406 A. J. Ž B1. . Correcting for selection bias Let Y stand for the rate of growth and X for some vector of observable variables. bivariate probit model with partial observability Žas is found in LIMDEP.R. Appendix B.44 otherwise. ty 1 . Ž A8. If selection I is not random. m . k . Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 The likelihood function is thus X G X I X I L s Ł F Ž g X x iG . E Ž y1 N x . ty 1 k x i . ty 1 k x i . s E Ž y 1 N x . =F Ž mX x iI. .

rvarŽ e1 . ty 1 F Ž m q h . Ž B5.R. . the coefficient on the omitted variable will be larger and the bias will be exacerbated. where EŽ Õ N d and I E Ž Õ I N d I ) ) 0 . If selection is on unobservables. I Ž . observe an agreement. Now. s l1 s G G) ) 0. A8 . controlling for some variable x in the outcome equation may reduce the error variance e1 without equally reducing the covariance e1 and Õ j. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 407 The expected value for the selected sample can be derived as follows Žsee Poirier. / 0... so that EŽ e1Õ j N X j . correction is straightforward: 1. EŽ y 1 N x . s u 1 ) 0. for the variables that enter both into selection and outcome equations may in fact exacerbate. note that the regression coefficient u 1 s covŽ e1 . as: X X G G) I I) E Ž e1 N d G ) ) 0. s 0. is estimated on the basis of the observed sample. x iG . Õ j . / 0Ž j g G. . We can now also understand why controlling Ž‘‘matching’’. 1993. d I ) ) 0 . d I ) ) 0 .. s b 1 x qu1 G l1 q u 1 I l1 . G s l1 s f Ž g q k . x iI. x iI. the variables lG and l I are omitted from the specification. d I ) ) 0. x iG . where both the government and the IMF want the agreement. distinguish first between selection on observables and on unobservables.. We can thus write the expected value in the observed sample as X X X G I E Ž y 1 N d G ) ) 0. Selection is on unobservables when EŽ e1Õ j N X j .. In state Ž1. so that controlling the factors observed by the investigator does not remove the covariance between the errors in the outcome and the selection equations. Note that if ŽB5. ty 1 F Ž g q k . 216 and Greene. s b 1 x q E Ž e1 N d G ) ) 0. J. Przeworski. where country-years observed under an IMF agreement. 1980. There are a total of four states of the world. d I ) ) 0 . Following Heckman Ž1988.. s X E Ž y 1 N x . d I ) ) 0 . 1986. ty 1 X .. but once the observed variables X j are controlled the covariance vanishes. q u 1 ) 0. 1979. . Hence. Hence. rather than attenuate. we can write the expected value of EŽ e1 N d G ) ) 0.A. I 4. Hence the variables lG 1 and l 1 are the hazard rates from Eq. Note that correcting for selection bias for country-years observed ‘‘not under’’ is not straightforward. d G ) ) 0. Selection on observables occurs when the expected covariance EŽ e1Õ j . the selection bias ŽAchen. G EŽ Õ N d I EŽ Õ N d Ž B4. selection is a source of omitted variable bias ŽHeckman. Assuming that V G and V I are independent. ty 1 X X X f Ž m q h .

or all observations belong to state Ž4.. s EŽ y 3 N x . In Ž3. s b 2 x q EŽ e 2 N G) I) d . In Ž4. s b 2 x q uG 2 l0 q u I 2 l0 . l1 . s b1 x q uG 1 l1 q u I 1 l1 . d . Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 For country-years observed not under . d . This produces four sets of b ’s with which to estimate growth according to four possible states of the world. observe no agreement... we do not know how to break up the not under observations respectively between states Ž2. observe no agreement.0 .0. and the IMF does not. We proceed by trying three different assumptions. We know that E Ž Õ G N d G ) . s EŽ y4 N x . ty 1 . d G ) .0. l 0 . 1 y F Ž mX x iI. Ž l 0 . d I ) ) 0.0. yf Ž mX x iI. neither the IMF nor the government wants to be under. but the government does not want to be under.0..: X X X G I E Ž y1 N d s 1.408 A. 1 y F Ž g X x iG . there are three possible states of the world: X 2. through Ž4. X X X I G E Ž y4 N d s 0 .0. X 4. d I ) .. all observations belong to state Ž3. EŽ y 2 N x .0. The problem is that since we do not observe the actors’ individual decisions.. X X X G I E Ž y3 N d s 0.R.0. s EŽ y 2 N x . ty 1 . EŽ y4 N x . s b 3 x q uG 3 l 0 q u I 3 l1 . or Ž l1 . s b4 x q uG 4 l1 q u I 4 l 0 . X X X G I E Ž y2 N d s 0. d G ) . . s b4 x q EŽ e 4 N G) I) d ) 0. the IMF wants an agreement. X 3. . s l0 s yf Ž g X x iG . . the government wants the agreement. s b 3 x q EŽ e 3 N G) I) d . s lG 0s and I E Ž Õ I N d I ) . The expected average rates of growth are . ty 1 . assuming that all observations belong to state Ž2. l 0 .. In Ž2.. . d G ) ) 0.0. ty 1 . but we do not observe when to use which pair of instruments when an observation is ‘‘not under’’: I G I G I Ž lG 0 .0. observe no agreement.. Przeworski. however. d I ) . d ) 0. EŽ y 3 N x . J.

’’ and the right-hand side variables of the growth equation enter into the reduced form of the selection equation. Tests for robustness Our robustness tests are best presented as a table.53 y3. a ‘‘Stripped’’ selection model combined with the ‘‘Barebones’’ .19 The effect of the IMF ranges from y1.29 The ‘‘Full’’ selection model is the one presented in Table 1 in the main body of the text.A.. DEBT SERVICE and BOP are not available and instead of DEFICIT we use government consumption as a proportion of GDP. Obviously. the ‘‘Full’’ selection model is estimated for the smallest.33 y2. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 409 Ž1.53 3. and state Ž2. Growth ‘‘not under’’ because of IMF 2. some variables must appear in the selection but not in the growth equation for the model to be identified. only post-1970.68 y1.88 y2. y1.67 y1. In the main body of the paper.66 3. Samples differ according to the availability of data and periods..66. Growth ‘‘under’’ Žboth want agreement. RESERVES.19 to y1. we report the effect of IMF programs as the difference between state Ž1. Ž2. in which the entries are the selection-corrected differences between average growth expected under and not under agreements: Growth model Selection modelrsample Full Exogenous N s 1024 Barebones ˙rK With endogenous K Panel Žone-way fixed. selection is ‘‘endogenous.07 Large N s 3991 y1.95 y3.00 3.05 y1. the predetermined variables in the growth equation do not enter into the reduced form of the selection equation. Since several observations necessary to estimate this model are not available.29 y1. number of observations Ž N s 1024. Hence. J. Growth ‘‘not under’’ because both Ž3. Other variables are the same as in the full selection model. No data concerning the basic selection variables are available for the pre-1970 period and more than one half observations are missing for the post-1970 period.R. To test whether our results depend on period and data availability.33 y3. which includes only those variables that are available for the entire sample. Appendix C.96 Endogenous Stripped Post-1970 N s 2607 y1. Selection is ‘‘exogenous’’ if it is not driven by the expected consequences: hence. Przeworski. Growth ‘‘not under’’ because of government Ž4. we also estimate a ‘‘Stripped’’ selection model. If the expected consequences do enter into the structural form of the model.

J. We cannot tell. effects. the average rate of growth in the world during the year.15 for the subset for which other data are missing and only 2. Finally. for countries not currently under. the results reported in the text are conservative. Having repeated the same procedure with regard to the predetermined variables. Hence. is lower when countries are under an agreement. terms of trade. the result would be y3. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 growth model is estimated for the same period Ž N s 2607. we follow these tests. Hence. we experimented by adding to the basic model the balance of payments as a proportion of GDP. If participation affects the values of these variables. then the counterfactual ‘‘had the countries been observed under the same conditions’’ is no longer valid.11. per capita income. In the ‘‘Panel’’ line of the table. debt service. we learned that the rate of growth of capital ˙rK . our sample is strongly biased against ˙rK : the mean rate of growth of capital stock for all the countries with higher K ‘‘under’’ observations in the large. Again. the duration of their last stint under IMF.R. stock. reserves. while the 614 observations of countries under for which other data are not available had an average rate of 4. Przeworski. Indeed. we use OLS for the ‘‘not under’’ observations and one-way fixed effects panel for the ‘‘under.01 for the observations for which other information is available. that is. we do not know if the rate of growth of capital ˙rK ’’ are based stock can be treated as exogenous. . Statistical tests Žboth F-test and x 2 . indicate for all samples and model specifications that the ‘‘not under’’ sample is not heterogeneous but that the ‘‘under’’ sample exhibits fixed.05. the effect of these programs appears much larger. K however. None of these variables is significant when the appropriate estimators are used. and for the entire 1951–1990 period Ž N s 3991. the percentage difference in output per worker between a given country and the maximum product per worker during this year. what is striking is that IMF programs have a negative effect on growth even if we assume investment to be exogenous with regard to participation. deficit. whether this is an effect of programs or of the sample for which other relevant variables are available. total number of years a country was under agreements in the past and. growth are calculated by taking K When the rate of growth of capital stock is considered to be an endogenous effect of IMF programs. note that the procedure in which we match observations for the values of the predetermined variables assumes that they are exogenous with regard to the states under which these observations are made. 1951–1990.410 A. and the rate of growth of education of an average member of the labor force.29 for the 1024 sample.. country.’’ If we were to calculate the average effect if both groups were estimated by panels. sample is 7. To test the robustness of the specification of the growth model. The lines ‘‘with endogenous K on the assumption that participation affects this variable and the expected rates of ˙rK at its mean for each participation status. This is particularly important because our sample is strongly biased by the availability of data: the 466 observations of countries under agreements which enter into our ‘‘Full’’ selection sample had an average rate of growth of 2. if anything.

J.A. 4126 ObserÕation-sample: 135 countries 1951–1990 Country Algeria Angola Benin Botswana Burkina Faso Burundi Years in sample 1962 1975 1960 1966 1960 1962 1990 1989 1990 1989 1990 1990 Spell of agreements Start End 1989 1990 Never under 1989 1990 Never under Never under 1965 1971 1976 1977 1986 1989 1988 1990 Never under 1980 1981 1983 1990 1987 1990 Never under 1967 1968 1977 1977 1979 1980 1986 1988 1990 1990 Never under 1977 1981 1987 1988 1981 1982 1978 1982 1986 1990 1977 1980 1982 1990 1966 1970 1979 1980 1983 1985 1987 1990 1982 1983 1986 1990 1987 1990 1981 1990 1975 1986 1988 1990 Cameroon Cape Verde Island Central African Republic Chad Comoro Island Congo 1961 1975 1961 1961 1975 1961 1990 1990 1990 1990 1990 1990 Djibouti Egypt Ethiopia Gabon Gambia Ghana 1977 1951 1951 1961 1965 1957 1987 1990 1986 1990 1990 1990 Guinea Guinea-Bisau Ivory Coast Kenya 1960 1974 1961 1963 1990 1990 1990 1990 . Country-years in sample D.R. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 411 Appendix D.1. Przeworski.

J. Przeworski. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 Lesotho Liberia Madagascar Malawi Mali 1966 1961 1961 1964 1961 1990 1986 1990 1990 1990 Mauritania 1961 1990 Mauritius Morocco 1968 1956 1990 1990 Mozambique Niger Nigeria Rwanda Senegal Seychelle Sierra Leone 1975 1961 1960 1962 1961 1976 1962 1990 1989 1990 1990 1990 1990 1990 Somalia South Africa 1961 1951 1989 1990 Sudan Swaziland Tanzania 1971 1968 1961 1990 1989 1988 Togo Tunisea 1961 1961 1990 1990 1988 1963 1979 1977 1980 1979 1988 1964 1967 1982 1977 1980 1985 1979 1959 1965 1980 1987 1983 1987 1966 1979 1979 Never under 1966 1969 1977 1984 1964 1980 1958 1961 1976 1982 1972 1979 Never under 1975 1980 1986 1979 1964 1986 1990 1977 1986 1978 1990 1986 1990 1965 1972 1990 1978 1982 1990 1986 1960 1972 1990 1990 1989 1990 1970 1980 1990 1967 1970 1982 1989 1971 1989 1959 1962 1977 1983 1975 1985 1976 1982 1988 1990 1970 1990 .R.412 A.

J. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 413 Uganda 1962 1990 Zaire Zambia Zimbabwe Bahamas Barbados Belize Canada Costa Rica Dominican Republic El Salvador 1960 1964 1965 1978 1966 1981 1951 1951 1951 1951 1989 1990 1990 1987 1989 1990 1990 1990 1990 1990 Grenada Guatemala 1985 1951 1990 1990 Haiti Honduras 1961 1951 1989 1990 Jamaica 1962 1990 Mexico 1951 1990 Nicaragua 1951 1990 Panama Trinidad and Tobago 1951 1962 1990 1990 1971 1980 1987 1976 1973 1976 1981 Never under 1982 1984 Never under 1980 1964 1983 1958 1980 1990 Never under 1960 1966 1981 1988 1961 1970 1957 1968 1979 1990 1963 1973 1977 1954 1959 1961 1977 1983 1956 1963 1968 1979 1965 1968 1989 1972 1984 1990 1989 1974 1987 1984 1984 1986 1990 1965 1986 1973 1983 1990 1962 1973 1984 1990 1967 1989 1966 1973 1983 1990 1964 1974 1990 1955 1959 1962 1979 1990 1961 1965 1973 1979 1966 1987 1990 . Przeworski.R.A.

R.414 A. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 USA Argentina 1951 1951 1990 1990 Bolivia 1951 1990 Brazil 1951 1990 Chile 1951 1990 Columbia Ecuador 1951 1951 1990 1990 Guyana Paraguay Peru 1966 1951 1951 1990 1990 1990 Suriname Uruguay 1975 1951 1989 1990 Venezuela Bangladesh 1951 1971 1990 1990 China India 1961 1951 1990 1990 1963 1958 1967 1976 1983 1956 1973 1980 1986 1958 1961 1965 1983 1988 1956 1961 1974 1983 1957 1961 1969 1983 1967 1990 1957 1954 1977 1982 Never under 1961 1966 1975 1990 1960 1989 1974 1979 1985 1981 1986 1957 1962 1981 1965 1963 1969 1977 1990 1970 1974 1981 1990 1959 1962 1973 1986 1990 1959 1970 1976 1990 1974 1967 1973 1990 1982 1990 1969 1971 1980 1985 1963 1973 1987 1990 1961 1990 1976 1983 1990 1981 1987 1958 1966 1984 . J. Przeworski.

Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 415 Indonesia Iran Iraq Israel Japan Jordan South Korea Laos Malaysia Mongolia Myanmar 1961 1956 1954 1954 1952 1955 1954 1985 1957 1985 1951 1990 1990 1987 1990 1990 1990 1990 1990 1990 1990 1989 Nepal Pakistan 1961 1951 1986 1990 Philippines 1951 1990 Singapore Sri Lanka 1965 1951 1990 1990 Syria Taiwan Thailand 1961 1952 1951 1990 1990 1990 Yemen Arab Republic Austria 1970 1951 1989 1990 1961 1968 1956 1960 Never under 1974 1962 1989 1965 1980 1989 Never under Never under 1969 1973 1977 1981 1976 1985 1958 1965 1968 1972 1977 1980 1988 1962 1973 1983 Never under 1965 1974 1977 1983 1988 1962 1964 Never under 1978 1981 1985 Never under Never under 1964 1974 1956 1962 1977 1965 1990 1977 1987 1990 1970 1975 1979 1982 1977 1986 1959 1966 1969 1975 1978 1983 1990 1965 1981 1990 1972 1975 1981 1984 1990 1962 1964 1979 1983 1986 .A. J. Przeworski.R.

J.R. Przeworski. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 Belgium Bulgaria Czechoslovakia Denmark Finland 1951 1981 1961 1951 1951 1990 1990 1990 1990 1990 France Germany East Germany Greece Hungary Iceland Ireland Italy Luxembourg Malta Netherlands Norway Poland Portugal Romania Spain Sweden Switzerland Turkey UK 1951 1951 1971 1951 1971 1951 1951 1951 1951 1964 1951 1951 1971 1951 1961 1951 1951 1951 1951 1951 1990 1990 1988 1990 1990 1990 1990 1990 1990 1989 1990 1990 1990 1990 1989 1990 1990 1990 1990 1990 USSR Yugoslavia 1961 1961 1989 1990 1952 Never under Never under Never under 1953 1967 1975 1956 1969 Never under Never under Never under 1982 1988 1960 Never under 1974 1977 Never under Never under 1957 Never under 1990 1977 1983 1975 1981 1959 1978 Never under Never under 1961 1978 1956 1961 1967 1975 Never under 1961 1965 1971 1988 1957 1953 1968 1976 1959 1970 1985 1990 1963 1975 1978 1958 1990 1979 1985 1978 1984 1961 1979 1971 1985 1959 1965 1970 1979 1961 1967 1986 1990 .416 A.

R. J. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 417 Australia Fiji New Zealand Papua New Guinea Solomon Islands Vanuatu Western Samoa 1951 1970 1951 1975 1981 1984 1980 1990 1990 1990 1990 1988 1990 1990 1961 1974 1967 1990 1981 Never under 1980 1983 1961 1975 1968 1990 1984 1980 1985 D. 1024 ObserÕation-sample: 79 countries 1971–1990 Country Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Congo Egypt. The Ghana Guinea-Bissau Cote d’Ivoire Kenya .A. Przeworski.2. Arab Republic Ethiopia Gabon Years in sample 1978 1977 1974 1986 1976 1986 1979 1981 1973 1984 1972 1981 1976 1984 1974 1980 1990 1974 1973 1987 1980 1973 1989 1987 1989 1989 1981 1990 1989 1988 1977 1990 1972 1989 1990 1986 1977 1988 1990 1990 1983 1990 1990 1990 Agreements Start End 1989 1989 Never under Never under 1986 1989 1988 1990 Never under 1981 1981 1983 1988 1987 1990 1986 1988 1977 1981 1987 1988 Never under 1980 1982 1986 1990 1977 1982 1979 1983 1987 1981 1975 1988 1980 1990 1980 1983 1990 1990 1986 1990 Gambia.

Przeworski.418 A. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 Lesotho Liberia Madagascar Malawi Mali Mauritania 1983 1976 1973 1981 1972 1978 1976 1983 1977 1985 1977 1973 1983 1974 1971 1976 1978 1975 1973 1973 1975 1984 1978 1973 1984 1972 1973 1978 1973 1973 1973 1971 1973 1990 1990 1986 1975 1990 1989 1989 1980 1989 1990 1989 1987 1979 1990 1990 1974 1976 1980 1990 1989 1990 1989 1988 1989 1990 1989 1989 1990 1990 1989 1988 1990 1982 1986 1990 1988 1976 1979 1981 1979 1988 1982 1977 1980 1985 1979 1987 1983 1987 1979 1979 1990 1977 1986 1990 1986 1989 1989 1978 1980 1989 1986 1989 1987 1990 1980 1980 Mauritius Mozambique Niger Nigeria Rwanda Senegal Sierra Leone Somalia Sudan Swaziland Tanzania Togo Tunisia Uganda Zaire Zambia Zimbabwe Barbados Costa Rica Dominican Republic El Salvador Guatemala 1977 1984 1980 1973 1979 Never under 1986 1979 1986 1984 1987 1976 1973 1976 1981 1982 1980 1983 1971 1980 1973 1981 1990 1982 1989 1989 1975 1985 1988 1989 1990 1984 1989 1989 1974 1987 1984 1984 1988 1986 1973 1982 1973 1984 1990 .R. J.

Przeworski. J. Vreeland r Journal of DeÕelopment Economics 62 (2000) 385–421 419 Haiti Honduras Jamaica Mexico Nicaragua Panama Trinidad and Tobago Brazil Chile Colombia Ecuador Guyana Paraguay Peru Uruguay Venezuela Bangladesh 1981 1973 1976 1973 1971 1974 1977 1979 1981 1973 1972 1974 1971 1973 1971 1973 1971 1974 1988 1988 1988 1990 1984 1990 1990 1979 1990 1983 1990 1990 1986 1990 1981 1983 1990 1990 India Indonesia Iran. Islamic Republic Jordan Malaysia Nepal Pakistan 1975 1973 1975 1984 1973 1977 1974 1990 1983 1983 1990 1984 1986 1990 Philippines Sri Lanka 1973 1971 1974 1990 1972 1990 1981 1973 1979 1977 1977 1983 1971 1979 1974 1989 1983 1988 1974 1983 1972 1983 1971 Never under 1971 1977 1973 1975 1989 1974 1979 1985 1981 1973 Never under 1989 Never under 1977 1985 1974 1977 1980 1988 1973 1983 1971 1977 1983 1988 1988 1973 1983 1988 1979 1990 1973 1979 1987 1990 1986 1990 1976 1983 1974 1990 1982 1971 1980 1973 1983 1990 1976 1983 1990 1984 1974 1990 1977 1986 1975 1978 1983 1990 1981 1990 1975 1981 1984 1990 .R.A.

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