## Do IMF Programs Stimulate Private Sector Investment?

_IMF Working Papers, July 29, 2022_

## Source details

**Canonical URL:** [Do IMF Programs Stimulate Private Sector Investment?](https://www.imf.org/en/publications/wp/issues/2022/07/28/do-imf-programs-stimulate-private-sector-investment-521028)

## Other formats

- [Markdown version](/en/publications/wp/issues/2022/07/28/do-imf-programs-stimulate-private-sector-investment-521028/index.md)
- [Structured JSON version](/en/publications/wp/issues/2022/07/28/do-imf-programs-stimulate-private-sector-investment-521028/index.json)
- [Bundle manifest](/en/publications/wp/issues/2022/07/28/do-imf-programs-stimulate-private-sector-investment-521028/bundle-manifest.json)

## Bibliographic details
- Authors: Pietro Bomprezzi, Silvia Marchesi, Rima A Turk
- Published: July 29, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400216800.001

---

### Summary
- Provides new evidence on the role of IMF programs in stimulating private sector investments.
- Uses detailed firm-level data on tangible fixed assets and a local projection methodology to estimate the dynamic response of firm investments to the approval of an IMF arrangement.
- Distinguishes between GRA and PRGT financing and documents two financial channels: firms’ external financial dependence and firms’ sectoral uncertainty.
- Employs a difference-in-differences approach exploiting firm-level characteristics to identify mechanisms.
- Finds stronger stimulation of private investments for domestic firms.
- Argues that a private investment transmission channel can improve understanding of factors affecting the success and effectiveness of IMF programs.

### Methodology
- Data: detailed firm-level data on tangible fixed assets.
- Estimation: local projection methodology to estimate dynamic responses of firm investments to program approval.
- Identification: difference-in-differences approach exploiting firm-level external finance dependence and sectoral uncertainty.
- Financing distinction: analysis separates GRA and PRGT financing in assessing investment paths and growth.

### Key Findings
- Distinguishing between GRA and PRGT financing matters for the path of firm investment and its growth.
- Two financial channels are documented:
  - Degree of firms’ external financial dependence.
  - Firms’ sectoral uncertainty.
- Firms that rely more on external finance and face more sectoral uncertainty experience a reduction in binding financial frictions following program approval and hence invest more.
- Private investments are stimulated more for domestic firms.

### Policy-Relevant Implications
- Recognition of a private investment transmission channel can inform assessments of IMF program effectiveness.
- Consideration of firm-level external finance dependence and sectoral uncertainty may improve program design and targeted support to stimulate private investment.

---

## Content in this bundle

- **Working Paper**
  - [Working Paper (Markdown version)](/-/media/files/publications/wp/2022/english/wpiea2022157-print-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Working Paper (PDF)](/-/media/files/publications/wp/2022/english/wpiea2022157-print-pdf.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2022/07/28/do-imf-programs-stimulate-private-sector-investment-521028_