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What kind of capital flows does the IMF catalyze and when?

Author

Listed:
  • Javier Díaz-Cassou

    (Banco de España)

  • Alicia García-Herrero

    (Banco de España)

  • Luis Molina

    (Banco de España)

Abstract

Using empirical analysis, complemented with case studies, this paper studies under which circumstances IMF programs manage to catalyze private capital flows into the countries concerned. While we found no catalysis in general, the situation differs very much depending on the type of capital flow and the program's objective. On the first, the Fund seems to be doing a better job at attracting FDI than shorter-term flows, particularly cross-border bank lending. On the second, programs oriented towards crisis prevention or with longer-term objectives, also perform better in terms of catalysis. In turn, programs oriented towards crisis resolution actually discourage private capital flows. This worrisome finding, given the importance of crisis resolution for the Fund, is mitigated for FDI inflows in the case studies analysed.Finally, all case studies point to the role of conditionality –as opposed to signalling and liquidity– as the strongest channel through which IMF catalyzes private flows.

Suggested Citation

  • Javier Díaz-Cassou & Alicia García-Herrero & Luis Molina, 2006. "What kind of capital flows does the IMF catalyze and when?," Working Papers 0617, Banco de España.
    • Handle: RePEc:bde:wpaper:0617
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    References listed on IDEAS

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    Cited by:

    1. Claudia Maurini & Alessandro Schiavone, 2021. "The catalytic role of IMF programs," Temi di discussione (Economic working papers) 1331, Bank of Italy, Economic Research and International Relations Area.
    2. Diego Bastourre & Jorge Carrera & Javier Ibarlucia, 2008. "Commodity Prices in Argentina. What Does Move the Wind?," Money Affairs, CEMLA, vol. 0(1), pages 1-30, January-J.
    3. Carmen Broto & Javier Díaz-Cassou & Aitor Erce-Domínguez, 2008. "The Sources of Capital Flows Volatility: Empirical Evidence for Emerging Countries," Money Affairs, CEMLA, vol. 0(1), pages 93-128, January-J.
    4. Aitor Erce, 2012. "Does the IMF´s official support affect sovereign bond maturities?," Working Papers 1231, Banco de España.
    5. Xiomara Archibald & Denny Lewis-Bynoe & Winston Moore, 2008. "Labour Market Flexibility in Small Island Developing States," Money Affairs, CEMLA, vol. 0(1), pages 73-91, January-J.
    6. Aitor Erce & Daniel Riera-Crichton, 2015. "Catalytic IMF? A gross flows approach," Working Papers 9, European Stability Mechanism.
    7. Juan Carlos Castañeda Fuentes & Juan Carlos Catalán Herrera, 2008. "Emigrant Remittances and the Real Exchange rate in Guatemala: an Adjustment-Costs Story," Money Affairs, CEMLA, vol. 0(1), pages 31-71, January-J.
    8. Marijana Andrijic & Tajana Barbic, 2018. "Trick or Treat? The Effect of IMF Programmes on Mobilising FDI in CESEE Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(3), pages 245-267, July.
    9. Aitor Erce, 2012. "Does the IMF's official support affect sovereign bonds maturities?," Globalization Institute Working Papers 128, Federal Reserve Bank of Dallas.
    10. Garcia-Herrero, Alicia & Santabarbara, Daniel, 2007. "Does China have an impact on foreign direct investment to Latin America?," China Economic Review, Elsevier, vol. 18(3), pages 266-286.
    11. Anton Sorin Gabriel, 2016. "Foreign Direct Investment Flows and IMF Lending Programs. New Empirical Evidence from CESEE Countries," Scientific Annals of Economics and Business, Sciendo, vol. 63(3), pages 311-320, November.

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    More about this item

    Keywords

    imf; catalytic role; private capital flows;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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