How to evaluate the effects of IMF conditionality: an extension of quantitative approaches and an empirical application to public education spending

Stubbs, T., Reinsberg, B. , Kentikelenis, A. and King, L. (2020) How to evaluate the effects of IMF conditionality: an extension of quantitative approaches and an empirical application to public education spending. Review of International Organizations, 15(1), pp. 29-73. (doi: 10.1007/s11558-018-9332-5)

Abstract

Following calls for a more disaggregated approach to studying the consequences of IMF programs, scholars have developed new datasets of IMF-mandated policy reforms, or ‘conditionality.’ Initial studies have explored how conditions have, inter alia, affected tax revenues, public sector wages, and health systems. Notwithstanding the important contributions of these studies, a methodological quandary arises as to how to quantitatively examine the effects of conditionality, as distinct from other aspects of IMF operations (e.g., credit, technical support, or aid and investment catalysis). In this article, we review and advance these methodological debates by developing an identification strategy for addressing the multiple endogenous components of IMF programs. We begin by surveying the main strategies for studying the effects of IMF programs: matching methods, instrumental variable approaches, system GMM estimation, and variants of Heckman estimators. We then adapt these methods for studying the effects of conditionality per se. Specifically, we utilize a compound instrumental variable design over a system of three equations to address sources of endogeneity related to, first, the IMF participation decision and, second, the conditions included within the program. In Monte Carlo simulations, we demonstrate that our approach is unbiased and performs better than alternatives on standard diagnostics across a range of scenarios. Finally, we apply these methods to investigate how IMF programs impact government education spending as a share of GDP on a sample of 132 developing countries for the period 1990 to 2014, finding exposure to an additional condition results in a 0.05 percentage point decline.

• Item Type: Articles
• Additional Information: The authors gratefully acknowledge funding by the Institute for New Economic Thinking (INET Grant INO13–00020: ‘The Political Economy of Structural Adjustment’), the Cambridge Political Economy Society Trust, and the Centre for Business Research at the University of Cambridge.
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Reinsberg, Dr Bernhard
• Authors: Stubbs, T., Reinsberg, B., Kentikelenis, A., and King, L.
• College/School: College of Social Sciences > School of Social and Political Sciences > Politics
• Journal Name: Review of International Organizations
• Publisher: Springer
• ISSN: 1559-7431
• ISSN (Online): 1559-744X
• Published Online: 13 December 2018
• Copyright Holders: Copyright © 2018 The Authors
• First Published: First published in Review of International Organizations 15(1): 29-73
• Publisher Policy: Reproduced under a Creative Commons License