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© 2022 International Monetary Fund
WP/22/157
IMF Working Paper
Strategy, Policy, and Review Department
Do IMF Programs Stimulate Private Sector Investment? Prepared by Pietro Bomprezzi, Silvia Marchesi, and Rima Turk-Ariss*
Authorized for distribution by Bikas Joshi July 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: This paper provides new evidence on the role of IMF programs in stimulating private sector investments. Using detailed firm-level data on tangible fixed assets and a local projection methodology, we first estimate the dynamic response of firm investments to the approval of an IMF arrangement. We find that distinguishing between GRA and PRGT financing matters for the path of firm investment and its growth, and we also document the presence of two financial channels; the degree of firms’ external financial dependence and firms’ sectoral uncertainty. Exploiting these firm-level characteristics, we employ a difference-in-differences approach to understand the mechanisms through which the approval of an IMF arrangement propagates in the private sector. We find that the more firms rely on external finance and the more they are subject to uncertainty, the less binding these financial frictions become, and hence the more firms invest following a program approval. Finally, using ownership data, we find that private investments are stimulated more for domestic firms. The presence of a private investment transmission channel could help improve our understanding of what factors could affect the success and effectiveness of IMF programs.
RECOMMENDED CITATION: Bomprezzi, Pietro, Silvia Marchesi, and Rima Turk-Ariss. 2022. Do IMF programs stimulate private sector investment? IMF Working Papers WP/22/157
| JEL Classification Numbers: | E22, F33, O19 |
| Keywords: | IMF; Firm investment; Local Projection; Financial Frictions; Difference-in-Differences |
| Authors’ E-Mail Addresses: | p.bomprezzi@campus.unimib.it; silvia.marchesi@unimib.it; RTurk@imf.org |
| JEL Classification Numbers: | E22, F33, O19 |
| Keywords: | IMF; Firm investment; Local Projection; Financial Frictions; Difference-in-Differences |
| Authors’ E-Mail Addresses: | p.bomprezzi@campus.unimib.it; silvia.marchesi@unimib.it; RTurk@imf.org |
Title Page
WORKING PAPERS
Do IMF Programs Stimulate Private Sector Investment?
Prepared by Pietro Bomprezzi, Silvia Marchesi, and Rima Turk-Ariss1
Contents
Introduction
Literature Review
Effects of IMF Programs
Firm Investment Under Uncertainty
Data
Identifying IMF Programs
Firm Tangible Fixed Asset Investment and Balance Sheet Data
Methodology and Identification Strategy
Empirical Findings
Local Projections Baseline Results
Firm Financial Frictions
Financial Frictions and Uncertainty: A Stacked Difference-in-Differences Approach
Domestic Ownership of Firms
Robustness and Alternative Specifications
Conclusion
Bibliography
Appendix
A. Sample and Descriptive Statistics
B. Additional Tables and Augmented Inverse Propensity Score Weighted
C. Alternative Specification
FIGURES
1. Distribution of IMF Programs per Year
2. IMF Programs and Firms
3. Average Investment by Firm Age
4. Program Approval and Firm Investment Response, AIPW Estimates
5. AIPW and Firm Age
TABLES
1. Summary Statistics
2. Program Signing and Firm Investment Response, AIPW Estimates
3. Firm Frictions and Dynamic Stacked DiD Estimates
4. Ownership Switches and Dynamic Stacked DiD Estimates
We are grateful (in alphabetical order) to Kurt Annen, Giovanni Dell’Ariccia, Omer Ethem Bayar, Clément de Chaisemartin, Vu Chau, Axel Dreher, Deniz Igan, Roland Kangni Kpodar, Giulio Lisi, Giovanna Marcolongo, Lucas Mariani, Hui Nguyen, Andrea Presbitero, Cian Ruane, Chad Steinberg, Agustin Velasquez, and Amine Yaaqoubi for insightful comments and suggestions. We would also like to thank participants of the IMF Strategy, Review, and Policy department internal seminars (IMF, 2021), the BBQ online seminar series (University of Hannover, 2022), and participants of the European Public Choice Society (2022). We thank Chiara Castrovillari for the excellent research assistance. All remaining errors are our own. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
We are grateful (in alphabetical order) to Kurt Annen, Giovanni Dell’Ariccia, Omer Ethem Bayar, Clément de Chaisemartin, Vu Chau, Axel Dreher, Deniz Igan, Roland Kangni Kpodar, Giulio Lisi, Giovanna Marcolongo, Lucas Mariani, Hui Nguyen, Andrea Presbitero, Cian Ruane, Chad Steinberg, Agustin Velasquez, and Amine Yaaqoubi for insightful comments and suggestions. We would also like to thank participants of the IMF Strategy, Review, and Policy department internal seminars (IMF, 2021), the BBQ online seminar series (University of Hannover, 2022), and participants of the European Public Choice Society (2022). We thank Chiara Castrovillari for the excellent research assistance. All remaining errors are our own. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.