## Evaluating the Impact of Non-Financial IMF Programs Using the Synthetic Control Method

_IMF Working Papers, May 5, 2017_

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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

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### 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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_Source: https://www.imf.org/en/publications/wp/issues/2017/05/05/evaluating-the-impact-of-imf-nonfinancial-programs-using-the-synthetic-control-method-44888_