Evaluating the Impact of Non-Financial IMF Programs Using the Synthetic Control Method
IMF Working Papers, May 5, 2017
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- Evaluating the Impact of Non-Financial IMF Programs Using the Synthetic Control Method
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Bibliographic details
- Authors: Monique Newiak, Tim Willems
- Published: May 5, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475599039.001
Methodology and scope
- Uses the Synthetic Control Method to study the effect of IMF advice on economic growth, inflation, and investment.
- Exploits IMF programs that do not involve any financing (Policy Support Instruments, “PSIs”) to isolate the effects of IMF monitoring, advice, and approval (as opposed to direct financial assistance).
- Focuses on non-crisis countries with non-financial programs, which:
- Mitigates the reverse causality problem.
- Facilitates the construction of counterfactuals.
Key empirical findings
- Treated countries add about 1 percentage point in annual real GDP per capita growth.
- Inflation is lower by some 3 percentage points per year in PSI-treated countries.
- No evidence found for an impact on total investment and the resulting capital stock.
- PSI-treatment appears to stimulate foreign direct investment.
Outcomes and interpretation
- Growth:
- Effect reported: about 1 percentage point annual real GDP per capita growth for treated countries.
- Inflation:
- Effect reported: lower inflation by some 3 percentage points per year following PSI treatment.
- Investment:
- Total investment and capital stock: no detectable impact.
- Foreign direct investment: evidence of stimulation following PSI treatment.
- Identification strengths:
- Non-financial programs enable isolation of monitoring/advice effects separate from financing.
- Non-crisis status of PSI countries reduces reverse causality concerns and improves counterfactual validity.
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- Evaluating the Impact of Non-Financial IMF Programs Using the Synthetic Control Method