THE POLITICAL ECONOMY OF INTERNATIONAL FINANCIAL INSTITUTIONS’ LENDING TO PAKISTAN

Anwar, Mumtaz (2006): THE POLITICAL ECONOMY OF INTERNATIONAL FINANCIAL INSTITUTIONS’ LENDING TO PAKISTAN. Published in: Pakistan Economic and Social Review , Vol. 2, No. 44 (December 2006): pp. 155-180.

Abstract

This paper analyzes the determinants of multilateral aid from international financial institutions (IFIs) to Pakistan, focusing on the world three major IFIs, the World Bank, the IMF and the ADB. Political economic factors, notably bureaucratic interests and major shareholders economic interests, are suspected to be relevant in international aid allocation decisions. Pooled Tobit estimation analyses confirm this hypothesis. Although recipient need also proves to be a relevant determinant of lending, bureaucratic interest outranks the former. Among the main multilateral donors, the IDA and the ADB are shown to be more bureaucratic and stakeholders economic interest-oriented in their lending decisions than the IBRD and the IMF, which tend to adhere to official lending explanations.

• Item Type: MPRA Paper
• Institution: Hamburg Institute of International Economics
• Language: English
• Keywords: Foreign aid; International organizations; Bureaucracy
• Subjects: F - International Economics > F3 - International Finance > F35 - Foreign Aid; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D70 - General

References

Andersen, Thomas Barbebeck, Henrik Hansen and Thomas Markussen (2005), US politics and World Bank IDA-lending. Discussion Paper 05-06. Institute of Economics, University of Copenhagen. Andersen, Thomas Barbebeck, Thomas Herr and Finn Tarp (2006), On US politics and IMF lending. European Economic Review, Volume 50, pp.1843-1862. Anwar, Mumtaz (2006), The political economy of international financial institutions (IFIs)’ lending to Pakistan. HWWA Discussion Paper 338. http://www.de/Forschung/Publikationen/Discussion_Paper/2006/338.pdf. Asian Development Bank (Various Years), Annual Report. Barro, Robert J. and Jong-Wha Lee (2002), IMF programmes: Who is chosen and what are the effects? NBER Working Paper No. 8951. Barro, Robert J. and Jong-Wha Lee (2005), IMF programmes: Who is chosen and what are the effects? Journal of Monetary Economics, Volume 52, pp. 1245-1269. Berthélemy, Jean-Claude (2006), Bilateral donors’ interest vs. Recipients’development motives in aid allocation: Do all donors behave the same? Review of Development Economics, Volume 10, pp. 179-194. Berthélemy, Jean-Claude and Ariane Tichit (2004), Bilateral donors’ aid allocation decision: A three-dimensional panel analysis. International Review of Economics and Finance, Volume 13, pp. 253-274. Bird, Graham and Dane Rowlands (2001), IMF lending: How is it affected by economic, political and institutional factors? Policy Reform, Volume 4, pp. 243-270. Birdsall, Nancy, Stijn Claessens and Ishac Diwan (2003), Policy selectivity foregone: Debt and donor behaviour in Africa. World Bank Economic Review, Volume 17, pp. 409-435. Borcherding, Thomas E. and Portia D. Besocke (2002), The contemporary political economy approach to bureaucracy. Claremont College Working Papers in Economics 2002-06. Burnside, Craig and David Dollar (2000), Aid, policies and growth. American Economic Review, Volume 90, pp. 847-868. Calomiris, Charles W. (2000), When will economics guide IMF and World Bank reforms? Cato Journal, Volume 20, pp. 85-103. Cline, William R. and Nicholas P. Sargen (1975), Performance criteria and multilateral aid allocation. World Development, Volume 3, pp. 383-391. Dreher, Axel (2004), A public choice perspective of IMF and World Bank lending and conditionality. Public Choice, Volume 119, pp. 445-464. Dreher, Axel and Nathan Jensen (2003), Independent actor or agent? An empirical analysis of the impact of US interests on IMF conditions. Leitner Working Paper 2003-04. Easterly, William (2002), The cartel of good intentions: Problem of bureaucracy in foreign aid. Policy Reform, Volume 5, pp. 223-250. Easterly, William (2003), The political economy of growth without development: A case study of Pakistan. In: In Search of Prosperity: Analytic Narratives on Economic Growth edited by Dani Rodrik. Princeton: Princeton University Press. Economist (2001), Bribing allies: The IMF and the World Bank become part of America’s anti-terrorist arsenal. The Economist, Volume 360, Issue 8241 (29.09.2001), p. 71. Fleck, Robert K. and Christopher Kilby (2006), World Bank independence: A model and statistical analysis of US influence. Review of Development Economics, Volume 10, pp. 210-223. Frey, Bruno S. and Friedrich Schneider (1986), Competing models of international lending activity. Journal of Development Economics, Volume 20, pp. 225-245. Gang, Ira and James Lehman (1990), New directions or not: AID in Latin America. World Development, Volume 18, pp. 723-732. Greene, William (2004), Fixed effects and bias due to the incidental parameters problem in the Tobit model. Econometric Reviews, Volume 23, pp. 125-147. Hasan, Parvez (1998), Pakistan’s Economy at the Crossroads: Past Policies and Present Imperatives. Karachi: Oxford University Press. International Monetary Fund (2004), Direction of Trade Statistics. CD-ROM. International Monetary Fund (Various Years), Annual Report. International Monetary Fund Independent Evaluation Office (2002),Evaluation of Prolonged Use of IMF Resources, http://www.imf.org/external/np/ieo/2002/pu/file8.pdf accessed on 17.10.2005. Kaufmann, Daniel, Aart Kraay and Massimo Mastruzzi (2005), Governance matters IV: Governance indicators for 1996-2004. World Bank Policy Research Working Paper Series No. 3630. Kilby Christopher (2006), Donor influence in MDBs: The case of the Asian Development Bank. Review of International Organizations, Volume 1, pp. 173-195. Michaelowa, Katharina (2003), The political economy of the enhanced HIPC-initiative. Public Choice, Volume 114, pp. 461-476. Moe, Terry M. (1997), The positive theory of public bureaucracy. In Dennis C. Mueller (eds.), Perspectives on Public Choice: A Handbook. Cambridge University Press. Mosely, Paul, Jane Harrigan and John Toye (1991), Aid and Power: The World Bank and Policy-Based Lending, Volume 1. London, Routledge. Niskanen, William A. (1994), Bureaucracy and Public Economics. London, Edward Elgar. OECD/DAC (2005), International Development Statistics Online Database for Aid and Other Resource Flows, http://www1.oecd.org/scripts/cde/members/DACAuthenticate.asp, accessed on 17.10.2005. Polity IV Project (2002), Polity IV Dataset version 2002 (p4v2002), http://www.cidcm.umd.edu/inscr/polity, accessed on 17.10.2005. Raman, B (2000), IMF Drips for Pakistan Economy. South Asia Analysis Group Paper No. 167, http://www.saag.org/papers2/paper167.htm, accessed on 17.10.2005. Rodrik, Dani (2003), Introduction. In: In Search of Prosperity: Analytic Narratives on Economic Growth, ed. Dani Rodrik. Princeton: Princeton University Press. Stone, Randall W. (2004), The political economy of IMF lending in Africa. American Political Science Review, Volume 98, pp. 577-591. Trumball, William N. and Howard J. Wall (1994), Estimating aid-allocation criteria with panel data. The Economic Journal, Volume 104, pp. 876-82. Vaubel, Roland (1991), A public choice view of international organization. In Roland Vaubel and Thomas D. Willett (eds.), The Political Economy of International Organizations: A Public Choice Approach. Boulder:Westview Press. Willett, Thomas D. (2001), Upping the ante for political economy analysis of the International Financial Institutions. The World Economy, Volume 24, pp. 317-332. Wintrobe, Ronald (1997), Modern bureaucratic theory. In Dennis C. Mueller (ed.), Perspectives on Public Choice: A Handbook. Cambridge University Press. World Bank (2004a), http://web.worldbank.org/WBSITE/EXTERNAL/EXTSITETOOLS/0,,contentMDK:20263942~menuPK:534312~pagePK:98400~piPK:98424~theSitePK:95474,00.html: accessed on 17.10.2005. World Bank (2004b), The World Bank in Pakistan: Country Brief. September 2004. World Bank (2004c), World Development Indicators. CD-ROM World Bank (2004d), Global Development Finance. CD-ROM.