Is Non-Compliance Costly? Investor Responses to IMF Program Failures

Social Science Quarterly, Vol. 84, No. 4, pp. 857-873, December 2005

34 Pages Posted: 25 Aug 2007

See all articles by Martin S. Edwards

Martin S. Edwards

Seton Hall University - School of Diplomacy and International Relations

Abstract

This paper reinvestigates the catalytic effects of IMF programs on investment controlling for the implementation of the program, allowing us to ascertain if capital markets respond to the mere announcement of a Fund program or its sustained positive implementation. Using a panel of data based on the experience of 106 developing countries entering Fund programs between 1979 and 1995, I employ both probit and tobit estimations to assess the effects of the announcement of a Fund program (and performance under it) on inflows of portfolio investment. I find that mixed evidence that good implementation serves to slow capital flight. I find consistently strong evidence that failed Fund programs produce portfolio flight. The findings suggest that we should think about the Fund's influence (both positive and negative) in light of how capital markets respond to its signals.

Keywords: International Monetary Fund, IMF, capital flows

JEL Classification: F33, G15

Suggested Citation

Edwards, Martin S., Is Non-Compliance Costly? Investor Responses to IMF Program Failures. Social Science Quarterly, Vol. 84, No. 4, pp. 857-873, December 2005, Available at SSRN: https://ssrn.com/abstract=1009742

Martin S. Edwards (Contact Author)

Seton Hall University - School of Diplomacy and International Relations ( email )

South Orange, NJ 07079
United States

HOME PAGE: http://https://www.shu.edu/profiles/martinedwards.cfm

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