IMF, Structural Adjustment, and Poverty: A Cross-National Difference-in-Differences

Abstract

The International Monetary Fund (IMF) has been one of the world’s most powerful international organizations in setting the parameters for economic reforms in the developing world. In this study, using data from 1980-2018 from 57 countries, we test competing hypotheses surrounding the impact of the IMF’s lending programs on poverty incidence in participant countries. Departing from the prevailing practice of relying on instrumental variables, we employ a novel difference-in-differences approach that ensures clean comparisons between “treatment” and “control” units based on their program participation histories. Besides providing a quantitative estimate of the average program effect, we evaluate whether the IMF’s alleged anti-poverty focus in recent decades has made any difference. We find that IMF program participation leads to large increases (3.6-5.7 percentage points) in the proportion of a country’s population living under the $3.65/day and $6.85/day international poverty lines (2017 PPP) and the country-specific Societal Poverty Line. We also find that the poverty reduction measures incorporated by the IMF into its programs have not been effective in mitigating the poverty-increasing program effects. Overall, our findings show that IMF programs have been detrimental to the welfare of vulnerable populations in participant countries.