Why Do Countries Request Assistance from International Monetary Fund? An Empirical Analysis

Ifrah Siddique, Muhammad Azmat Hayat, Muhammad Zahid Naeem, Abdullah Ejaz, Cristi Spulbar (), Ramona Birau and Toni Calugaru
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Ifrah Siddique: Department of Economics, University of the Punjab, Lahore 54590, Pakistan
Muhammad Azmat Hayat: Department of Economics, University of the Punjab, Lahore 54590, Pakistan
Muhammad Zahid Naeem: School of Business and Economics, University of Brunei Darussalam, Darussalam BE1410, Brunei
Abdullah Ejaz: Accounting Department, Bredin College of Business and Health Care, Edmonton, AB T5J 0K1, Canada
Ramona Birau: Faculty of Education Science, Law and Public Administration, Constantin Brancusi University of Targu Jiu, 210135 Târgu Jiu, Romania
Toni Calugaru: Faculty of Economics and Business Administration, University of Craiova, 200585 Craiova, Romania

JRFM, 2021, vol. 14, issue 3, 1-19

Abstract: This paper investigates the determinants behind persistent and prolonged stays under the International Monetary Fund (IMF) program and its effectiveness, using panel data consisting of 70 countries that have requested IMF support multiple times, during the period 1980–2018. By employing panel survival analysis, we conclude that weak economic indicators, e.g., current account deficit, high debt service ratio, low GDP, are the main reasons that force a country to reach out to the IMF support program. We further extend our analysis to investigate the effectiveness of the IMF program by dividing our sample into two groups, based on income level. To overcome the issue of endogeneity, we implement the panel instrumental two-stage least squares (2SLS) fixed-effect model. In the light of our analysis, we find a contemporaneous positive impact of the IMF fund program on the economic growth of upper middle-income countries, while, for low-income countries, its contemporaneous impact is insignificant, but becomes visible over time.

Keywords: IMF; panel survival analysis; endogeneity; low- and upper middle-income countries (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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