Assessing the Impact of IMF Intervention on Economic Growth Following Financial Crises: An Empirical Analysis Through Demand Determinants

This paper examines how the IMF intervention affects economic growth following banking and currency crises. These crises, triggered by financial liberalization, have resulted in significant economic imbalances within the affected countries. The latter often seek external assistance, particularly from the IMF, to regain the confidence of international investors and stimulate their economies. The effectiveness of IMF intervention during this type of crisis can vary according to the specific features of each country. In this article, we conduct an econometric study spanning the period 1992-2022, using panel data from 14 countries that have experienced financial crises. Our objective is to empirically analyze the impact of IMF austerity measures on their economic recovery, focusing on demand determinants. We employ the Driscoll and Kraay (Citation1998) method with fixed effects, which is particularly suited for long dynamic panels. Our key finding reveals that the lagged dependent variable is significant but exerts a negative impact on growth. However, IMF intervention, as well as its interaction with demand determinants, show no effect on the growth rate.